John Hancock Life v. Abbott Laboratories ( 2006 )

United States Court of Appeals
For the First Circuit
No. 05-2710
JOHN HANCOCK LIFE INSURANCE COMPANY;
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY;
and INVESTORS PARTNER LIFE INSURANCE COMPANY,
Plaintiffs, Appellees,
v.
ABBOTT LABORATORIES,
Defendant, Appellant;
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Torruella and Lipez, Circuit Judges
and Stafford,* District Judge.
Lawrence R. Desideri, with whom Stephen V. D'Amore, Peter E.
Gelehaar, Michael S. D'Orsi, Winston & Strawn, LLP, and Donnelly,
Conroy & Gelharr LLP were on brief, for the appellant.
Brian A. Davis, with whom Joseph H. Zwicker, Stacy Blasberg,
and Choate, Hall & Stewart LLP were on brief, for the appellee.
September 28, 2006
AMENDED OPINION**
*
Of the Northern District of Florida, sitting by designation.
** This opinion has been amended solely to comport with sealing
orders issued by the district court and this court. The amendments
do not in any way affect the substance of the opinion.
LIPEZ, Circuit Judge. John Hancock Life Insurance
Company and two of its subsidiaries (collectively "Hancock")
contracted with Abbott Laboratories ("Abbott") to join in financing
the development of some pharmaceutical compounds. In exchange,
Abbott promised to share with Hancock any profits the compounds
would generate. It soon became apparent that a number of the
compounds had no good prospect of commercial success. Abbott
scaled back and delayed its planned investment in the joint
project. Arguing that Abbott had failed to uphold its part of the
bargain, Hancock stopped contributing funds altogether. Hancock
then sued for a declaratory judgment, asking the district court to
rule that, under the contract between the parties, Abbott's delayed
investment allowed Hancock to terminate its payments but retain its
share of any future profits. Abbott countersued, arguing that the
contract explicitly allowed it to delay its contributions to the
project. The parties consented to have the district court decide
the case on the papers submitted, and, on cross motions, the
district court entered judgment for Hancock. Abbott appeals,
essentially arguing that the district court incorrectly construed
the contract. We affirm.
I.
We discuss the contract between Hancock and Abbott and then
their course of dealings. We leave some details for discussion in
connection with Abbott's appellate arguments.
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A. The contract
In 1999, Hancock and Abbott began negotiating the joint
venture at issue. While the specifics evolved through 40 contract
drafts, the basics of the final agreement are relatively simple.
Abbott and Hancock would select a "basket" of research compounds
that Abbott had identified as possible pharmaceutical products and
that Hancock thought were promising. Hancock would contribute
multiple millions each year for four consecutive years towards the
development of these compounds. Abbott would spend at least 1.86
times as much as Hancock over this initial period of development.
The parties would share any profits from the compounds for roughly
fifteen years from the contract's inception, and Abbott would pay
Hancock set amounts when the joint project accomplished certain
development or regulatory goals. In short, Hancock agreed to
provide substantial start-up investment for the project, and Abbott
agreed to match that investment. Because Hancock would share
profits only for a set number of years, it stood to gain if the
compounds were developed quickly (and if they turned out to be
useful) and stood to lose if development were delayed (or if the
compounds were unsuccessful).
For our purposes, the final contract between the parties,
which was signed on March 13, 2001, can be summarized.
! The parties agreed to partner in the development
of a basket of compounds, with each compound
thought to have a potential pharmaceutical use.
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! Hancock agreed to reimburse multiple millions of
Abbott's spending on the joint project in four
multiple million dollar payments – one for each
year 2001 through 2004.
! Abbott agreed to provide an additional annual
minimum contribution of un-reimbursed funds to the
project in each of the four years.
! Abbott also agreed that its and Hancock's
combined spending on the project would be "at
least" the Aggregate Spending Target over the
"Program Term," which the contract defined as "a
period of four (4) consecutive Program Years."1 In
other words, by December 31, 2004, Abbott would
provide approximately two-thirds of the Aggregate
Spending Target to the project above and beyond the
one-third of the Aggregate Spending Target that
Hancock promised to contribute.
! Abbott was "permitted" to "change its funding
obligations [] only as follows":
(a) If Abbott expended Hancock's yearly
contribution during a "Program Year" but did
not contribute its annual minimum contribution
of its own un-reimbursed funds, Abbott could
"carryover" its obligation to the following
year. The balance of Abbott's yearly
obligation, termed the "Annual Carryover
Amount," would be added to Abbott's minimum
contribution for the "subsequent Program
Year." If Abbott carried over its
contribution, Hancock's obligations for the
"subsequent Program Year" would be suspended
until Abbott spent the "Annual Carryover
Amount."
(b) If Abbott did not spend the entire
Aggregate Spending Target "during the Program
Term," it could "carryover" the balance to the
"subsequent year commencing immediately after
1
The contract defined a "Program Year" as a full calendar year
beginning on January 1 and ending on December 31, except that the
first "Program Year" would be shortened to begin of the day the
contract was signed and to end on December 31, 2001.
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the end of the Program Term." If there was
such a carryover, the difference between the
Aggregate Spending Target and the amount
actually spent by the end of the "Program
Term" would be called the "Aggregate Carryover
Amount."
! Abbott would update Hancock at least yearly about
the project, providing an "Annual Research Plan"
with a budget for future spending. Abbott would
also provide yearly "Status Reports" stating the
company's spending on the joint project so far.
Hancock's payments were due 30 days after receiving
these documents.
! In certain enumerated circumstances, including if
Abbott "does not demonstrate in its Annual Research
Plan its intent and reasonable expectation" to
spend at least the Aggregate Spending Target in
joint funds on the project "during the Program
Term," Hancock's funding obligations would
terminate but the rest of the contract (detailing
how the parties would share profits) would remain
in effect.
! Even if one of the enumerated terminable events
came to pass and Hancock's payment obligations were
cancelled, Hancock would still have to pay its
contributions for the year in which the terminable
event took place.
B. The parties' dealings
2001
Abbott's first "Annual Research Plan" was appended to the
final contract, which was executed on March 13, 2001. It called
for total project spending almost double the Aggregate Spending
Target by the end of 2004. Under this plan, Abbott would spend
many millions of dollars of its own funds, or roughly five times as
much as Hancock, through the end of 2004. During 2001, Abbott
decided to halt development of some compounds. In November, Abbott
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sent Hancock a document titled "2002 Preliminary Annual Research
Plan," which called for total spending of less than Abbott's first
Annual Research Plan but more than the Aggregate Spending Target
through 2004. In December, Abbott sent the "2001 Status Report" on
the year's spending, revealing that spending on the project would
total multiple millions less by year's end (compared to the amount
that had been planned). Abbott's cover letter for the "2001 Status
Report" stated that Hancock's 2001 payment was due in 30 days, an
indication that Abbott believed its contractual obligations for the
year had been satisfied. This was so even though the only "Annual
Research Plan" Abbott had given Hancock was marked "Preliminary."
Abbott did not manifest any intention to send an update to the
"2002 Preliminary Annual Research Plan." Apparently agreeing that
the "Preliminary" plan satisfied Abbott's reporting obligation for
2001, and that Abbott's obligations for that year were complete,
Hancock timely provided its 2001 contribution of multiple millions.
2002
In 2002, Abbott decided to terminate development of an
additional compound because the scientific results did not warrant
further development. Abbott also dramatically reduced efforts on
some other compounds. As a result, less than two years into the
joint project, Abbott was pursuing a significantly smaller number
of the original basket of compounds with full effort. Abbott
submitted its "2002 Status Report" and the "2003 Preliminary Annual
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Research Plan" together on December 20, 2002. The Status Report
revealed that 2002 spending on the project would be far less than
the "2002 Preliminary Annual Research Plan" had promised. The Plan
stated that spending for 2003 would also be significantly less than
Abbott had estimated the year before. The Plan, however, was
silent as to 2004. Unlike the previous year's version, the Plan
divulged the company's planned spending only for the next year.
(Abbott later explained that the 2004 numbers had not been listed
in the "2003 Preliminary Annual Research Plan" because of a
computer error.) As it had the previous year, Abbott stated in a
cover letter, also sent on December 20, that Hancock's 2002
contribution was due in 30 days. Again, Abbott manifested no
intention to update its "Preliminary" report and gave no indication
that the document was not the planning statement required by the
contract. Hancock timely provided its reimbursement of multiple
millions.2
2003
During further review of the "2003 Preliminary Annual Research
Plan," Hancock noticed the document's failure to make any
prediction of spending in 2004, a lapse that the company appears to
have overlooked on its initial review. During a September 9, 2003
conference call, Hancock asked Abbott to supplement the plan with
2
The 30th day after December 20 was January 19, a Sunday. Hancock
tendered its payment the next business day. Abbott accepted the
payment without comment and agrees that it was timely.
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the missing information. Abbott's Controller then sent Hancock a
letter, dated September 22, 2003, stating the following:
I went back to review the data and spend estimates
made about 1 year ago for 2003. On 8/26/02, the
estimated program spend for 2003 was at [more than
indicated in the 2003 Preliminary Annual Research
Plan]. By October 14, 2002, after the Executive
Committee's portfolio review, the estimated spend
for 2003 had dropped to [approximately the same
amount as in the 2003 Preliminary Annual Research
Plan] and for 2004, it was at [an amount that when
added to the spending for 2001, 2002 and 2003 was
less than the Aggregate Spending Target].
This was an important admission. Abbott confirmed that if there
had been no computer error and the "2003 Preliminary Annual
Research Report" had included planned spending for 2004, it would
have shown that Abbott planned to spend only an amount less than
previously projected, which would mean that spending through the
end of 2004 would total -- at the most -- an amount less than the
Aggregate Spending Target. The earlier status reports had
indicated that Abbott's spending for 2001 and 2002 would be higher.
In its October 2002 reviews, Abbott had projected higher spending
for 2003 and for 2004.
To the same September 22, 2003 letter, Abbott attached a
document it called "the Final 2003 Plan." This version of the 2003
plan indicated that Abbott's spending during the Program Term would
be even lower than it had projected in October 2002. Abbott
forecasted total spending of less than the Aggregate Spending
Target through 2004 and an additional amount in 2005. Under this
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projection, total spending through 2004 would fall many millions
short of the Aggregate Spending Target. However, Abbott would
exceed the threshold if 2005 spending were included.
After reviewing the updated 2003 plan, Hancock sent Abbott a
letter, dated October 10, stating that its "obligation to make any
remaining Program Payments to Abbott for [2003 and 2004] is
terminated" because "the Final 2003 Plan, in conjunction with the
more limited information contained in the Preliminary 2003 Annual
Research Plan . . . did not, and does not, reasonably demonstrate
Abbott's intent and reasonable expectation to" spend the Aggregate
Spending Target on the joint project "during the Program Term."
Shortly thereafter, Abbott sent Hancock a "2004 Preliminary
Annual Research Plan," which projected total project spending for
2004 and 2005. Cumulative spending on the project would be less
than the Aggregate Spending Target through 2004 and more than the
Aggregate Spending Target through 2005. The same document
indicated that Abbott would spend well below the annual minimum in
2003 provided for under the contract.
Hancock never made a contribution for 2003. Rather, the
company sued Abbott in the district court for a declaratory
judgment that its payment obligations had terminated. After
pretrial proceedings, the parties consented to have the district
court resolve their dispute on the papers as a "case stated,"
meaning that the district court "could make findings of fact
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instead of granting inferences to each non-movant in turn."
DiGregorio v. Hartford Comp. Employee Ben. Serv. Co., 423 F.3d 6,
12 (1st Cir. 2005). In due course, the district court issued a
thorough 65-page opinion, finding in Hancock's favor both on the
question of whether Abbott was required to plan on spending at
least the Aggregate Spending Target through 2004, and on whether
Abbott's failure to do so allowed Hancock to cancel its 2003
payment, as well as its payment for 2004.
II.
The district court determined that, for the most part, the
contract between the parties was "unambiguous and that the
interpretation proffered by Hancock is the only reasonable one."
The district court did identify two ambiguities in the contract
that were relevant to the dispute between the parties. As to one
of these ambiguities, which we explain later in this opinion, the
district court considered extrinsic evidence and made findings of
fact on the intent of the contracting parties. As we also explain,
the other "ambiguity" identified by the district court was really
an issue of contract interpretation, and was resolved as such. On
both issues, the district court concluded that Hancock had the
stronger case.
On appeal, Abbott challenges the district court's findings and
conclusions with three arguments. First, Abbott says that the
contract allowed it to plan to spend the Aggregate Spending Target
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over five years instead of four. Anticipating the possible
rejection of this claim, Abbott also makes two alternative
arguments that, if accepted, would entitle it to Hancock's 2003
payment of multiple millions. Abbott says that the event allowing
Hancock to stop paying happened in 2003, not 2002, and so Hancock
had to make its payment for that year.3 Even if the relevant event
happened in 2002, meaning that Hancock was potentially freed of its
obligation to make a 2003 payment, Abbott contends that Hancock
waived that right by failing to recognize the 2002 event promptly.
We address these arguments in turn.
A. Jurisdiction and standard of review
Like the district court, we will accept the parties' agreement
on forum selection and choice of law. The contract allows any
disputes between the parties to be decided in the federal district
court in Massachusetts. Based on the parties' complete diversity
of citizenship and the dollar amount at issue, this case is
properly in federal court. See 28 U.S.C. § 1332. The contract
calls on us to apply Illinois contract law (Abbott is based in
Illinois), which the parties agree should govern. We are "free to
forego independent inquiry and accept that agreement." Cochran v.
Quest Software, Inc., 328 F.3d 1, 6 (1st Cir. 2003).
As to matters of law decided on summary judgment, such as
3
As we noted above, the contract provided, "For the avoidance of
doubt, [Hancock's] Program Payments for the Program Year in which
[a terminable] event occurs shall still be due and payable."
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contract interpretation, our review is de novo. See Utica Mutual
Ins. Co. v. Weathermark Investments, Inc., 292 F.3d 77, 80 (1st
Cir. 2002). If it were necessary to review the district court's
factual findings, our review would be far more deferential. See
Principal Mutual Life Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1,
3 (1st Cir. 2000). However, as we will discuss, we believe that
the contract is unambiguous on the points necessary for the
disposition of this appeal, permitting us to affirm on the plain
meaning of the contract alone. See States Res. Corp. v. The
Architectural Team, Inc., 433 F.3d 73, 80 (2005) (recognizing that
the court of appeals can affirm a grant on summary judgment on any
basis made apparent by the record).
B. Abbott's planning obligations
Hancock's position is easily summarized. The contract allowed
Hancock to stop paying if Abbott did not "reasonably demonstrate in
its Annual Research Plan, its intent and reasonable expectation to
expend on Program Related Costs during the Program Term an amount
in excess of [the Aggregate Spending Target]" (emphasis added).
The contract defines "Program Term" as "a period of four (4)
consecutive Program Years" (emphasis added). The contract defines
"Program Year" as "a period of twelve (12) consecutive calendar
months commencing on January 1 of each year, except that the first
Program Year shall commence on the Execution Date and end on
December 31, 2001." This means, according to Hancock, that the
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"Program Term" ended on December 31, 2004, and that Abbott was
required to budget in its "Annual Research Plans" to spend the
Aggregate Spending Target by that date. Since Abbott planned to
spend less than the Aggregate Spending Target by the end of 2004,
Hancock could stop paying.
Abbott's more complicated position relies on the fact that the
"carryover" provisions in the contract allowed the company to
postpone actual attainment of the Aggregate Spending Target
threshold until the end of 2005. According to Abbott, the
carryover provisions, by implication, also freed the company of any
obligation to plan to spend all of the Aggregate Spending Target by
the end of 2004. Hancock counters that the carryover provisions do
not by their terms apply to Abbott's planned spending, but only to
its actual spending. The sense of this distinction, Hancock and
the district court agreed, is that unforseen circumstances during
the fourth year might reasonably have been thought by the
contract's drafters to excuse strict compliance with the
contractually agreed spending, even if a mere change in plans on
Abbott's part would not.
Hancock has by far the stronger argument. As the district
court recognized, Abbott's approach is belied by the contract's
definition of "Program Term."
In Illinois, as elsewhere, "[i]t is a basic and fundamental
tenet of contract law [] that even if a contract offers only a
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limited definition of a term, it must be applied as written."
Conn. Specialty Ins. Co. v. Loop Paper Recycling, Inc., 824 N.E.2d
1125, 1133 (Ill. App. 2005). Put another way: "A court . . . may
not interpret [a] contract in a way contrary to the plain and
obvious meaning of its terms." Krilich v. American Nat. Bank &
Trust Co. of Chicago, 778 N.E.2d 1153, 1164 (Ill. App. 2002). See
also In re Blinds to Go Share Purchase Litigation, 443 F.3d 1, 7
(1st Cir. 2006) ("Where the parties to a contract take pains to
define a key term specially, their dealings under the contract are
governed by that definition."); Alexian Bros. Health Providers
Ass'n v. Humana Health Plan, Inc., 330 F. Supp. 2d 970, 975 (N.D.
Ill. 2004) ("[P]arties to a contract may serve as their own
lexicographers and may assign a particular meaning to any word they
choose.").
In light of these precedents, we need look no further than the
contract's own definition of "Program Term" as "a period of four
(4) consecutive Program Years." When the contract said that
"Hancock's obligation to make any remaining Program Payments . .
. shall terminate" if Abbott did not "reasonably demonstrate in its
Annual Research Plan, its intent and reasonable expectation to
expend on Program Related Costs during the Program Term an amount
in excess of [the Aggregate Spending Target]" (emphasis added), the
contract meant that Hancock could stop paying if Abbott did not
"demonstrate . . . its intent and reasonable expectation" to spend
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the money by the end of 2004. Abbott insists that "[n]owhere does
[the contract] provide that Abbott must forfeit Hancock's payments
if Abbott forecasts [] that it will need [a] fifth year" to spend
the Aggregate Spending Target. But the contract provides exactly
that.
As the district court stated, reading the contract as it was
written does not somehow make the contract illogical, irrational,
or "commercially unreasonable." Cf. Beanstalk Group, Inc. v. A.M.
Gen. Corp., 283 F.3d 856, 860 (7th Cir. 2002) ("[A] contract will
not be interpreted literally if doing so would produce absurd
results that the parties, presumed to be rational persons pursuing
rational ends, are unlikely to have agreed to seek."). Abbott and
Hancock reasonably could agree that Abbott would be bound by the
contract to make all reasonable efforts to spend the Aggregate
Spending Target on the joint project by the end of 2004. Hancock
had obvious reasons to prefer such an obligation: the more Abbott
spent on the project during its first four years, the greater
Hancock's returns were likely to be. Abbott had good reasons to
accede to Hancock's demands: Hancock provided an enormous infusion
of funds on favorable terms. And Abbott and Hancock reasonably
could agree that, despite Abbott's obligation to make all
reasonable attempts to spend the Aggregate Spending Target through
2004, the company should have the ability to stretch its actual
expenditure of funds into a fifth year, if unexpected events during
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2004 made it impossible to spend the money as soon as planned. The
parties shared an interest in avoiding unnecessary or inefficient
last-minute spending on the project. In light of these plausible
goals, it made sense for the contract to provide that Abbott was
required to plan to spend the Aggregate Spending Target by December
31, 2004, but that it was not required to actually spend the money
by that time. Whether this was the best, fairest, or most
efficient way to structure the contract is not our concern.4
Referring to the rule that a contract must be read as a whole,
Abbott places great reliance on the appearance of the phrase "any
extension period of the Program Term" in the contractual definition
of "Program Related Costs." "Program Related Costs," not otherwise
relevant here, were costs that Abbott could count as expenditures
on the joint program. The definition provided:
"Program Related Costs" shall mean (i) all direct
and indirect costs and expenses that are incurred
by Abbott during a given Program Year . . . and
(ii) the milestone and license fees paid during a
given Program Year or during any extension period
4
Abbott says repeatedly -- in its brief and at oral argument --
that the contract must be read to impose a two to one ratio of
Abbott's spending to Hancock's. Abbott criticizes the district
court for allowing actual spending in roughly a four to one ratio.
But the contract never required Hancock to spend half as much as
Abbott. Indeed, Abbott's initial projection was that it would spend
five times as much as Hancock. What the contract did not allow was
for Abbott to spend less than 1.87 times as much as Hancock
(Hancock's maximum contribution was approximately one-third of the
Aggregate Spending Target, and Abbott's minimum was approximately
two-thirds of the Aggregate Spending Target). Our resolution of
this dispute is fully consistent with these principles agreed to by
the parties.
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of the Program Term . . ..
According to Abbott, the phrase "extension period" in the above-
quoted paragraph frees the company from any obligation to plan for
spending the Aggregate Spending Target by the end of 2004.
The district court found Abbott's "extension period" argument
unpersuasive. We agree, though for different reasons.5 The
language Abbott relies on does not purport to alter the meaning of
"Program Term," which is the definition that matters in the section
allowing Hancock to terminate its payments. As the district court
stated, "the Agreement defines 'Program Term' specifically and
without exception as 'a period of four (4) consecutive Program
Years. . . . Thus, the Program Term, as defined by the Agreement,
ran from March 13, 2001 through December 31, 2004." The
contractual relationship between Abbott and Hancock would continue
beyond the end of 2004, the district court recognized, because
Abbott would remain responsible for making payments to Hancock.
But that continuation did not free Abbott from its obligation to
plan to spend the Aggregate Spending Target during the "Program
Term" itself. Additionally, there are contextual clues far more
5
The district court found the "extension period" language
ambiguous. It then conducted a skillful and convincing analysis of
some 40 contract drafts that preceded the final version. On the
basis of that review, the district court found that "extension
period" was a "vestige" from a previous draft that the parties
mistakenly failed to delete from the final contract. If we were
not able to resolve the issue on the plain language of the
contract, we would readily adopt the district court's factual
findings on the ambiguity.
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relevant to this controversy that eliminate any chance that the
parties to the contract intended the "Program Term" to be five
years rather than four. For instance, the very carryover
provisions Abbott relies on refer to the "Program Term" and "the
subsequent year commencing immediately after the end of the Program
Term." The only plausible reading of the contract is that "the
subsequent year commencing immediately after the end of the Program
Term" is the year 2005. The "Program Term" itself ended on
December 31, 2004.
In short, the contract required that Abbott plan to spend the
Aggregate Spending Target during the "Program Term." The contract
defined the "Program Term" as the period beginning on the day the
contract was signed and ending on December 31, 2004. Abbott
unambiguously revealed in its 2003 plan that it did not plan to
spend the Aggregate Spending Target by the end of 2004. Therefore,
under the terms of the contract, Hancock could terminate its
payments.
C. The year of the terminable event -- 2002 or 2003?
Abbott argues in the alternative that, even if Hancock could
withhold its 2004 payment in light of Abbott's failure to forecast
spending the Aggregate Spending Target through 2004, Hancock could
not cancel its 2003 payment. Abbott rests this argument on wording
in the same section of the contract that allowed Hancock to stop
paying if Abbott did not "reasonably demonstrate in its Annual
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Research Plan, its intent and reasonable expectation to expend on
Program Related Costs during the Program Term an amount in excess
of [the Aggregate Spending Target]." The wording states: "For the
avoidance of doubt, [Hancock's payments] for the Program Year in
which [an event that allows the termination of payments] occurs
shall still be due and payable." Abbott says that Hancock stopped
paying on the basis of events that happened in 2003 and that the
2003 payment was therefore still due. In response, Hancock says
that the event allowing it to terminate its payments was Abbott's
December 2002 "2003 Preliminary Annual Research Plan," which failed
to manifest any intention by Abbott to spend the Aggregate Spending
Target on the joint project by the end of 2004. We agree with the
district court that Hancock was not required to make a 2003
payment.
Abbott argues that the December 20, 2002 document cannot be
considered a ground for termination for two reasons: because it was
marked "Preliminary" and because it did not include any statement
of planned spending for 2004. Neither of these rationales is
convincing. Hancock was not obligated to wait for an annual
research plan labeled "Final." When Abbott sent Hancock the "2003
Preliminary Annual Research Plan" in December 2002, it also said
that the 30-day period for Hancock's payment was running, a sure
indication that Abbott considered its yearly reporting obligations
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to be complete.6 This demand for payment conformed to Abbott's
practice from the previous year of treating a "Preliminary" annual
plan as the "Annual Plan" required by the contract. Additionally,
Abbott gave no indication that another plan, which might indicate
satisfactory planned spending for 2004, was coming.
Abbott also says that the December 2002 document was not a
terminable event because it did not contain any projections for
2004. This argument fails in light of the contractual language and
Abbott's later admissions. As we discussed above, the contract
allowed Hancock to terminate its payments if Abbott did "not
demonstrate in its Annual Research Plan its intent and reasonable
expectation" to spend at least the Aggregate Spending Target in
joint funds on the project "during the Program Term." The "2003
Preliminary Annual Research Plan," submitted in 2002, plainly did
"not demonstrate" any intention by Abbott to spend the Aggregate
Spending Target through 2004. Actually, due to the computer
glitch, the document "did not demonstrate" a plan to spend anything
at all in 2004. But -- as Abbott later admitted -- even if the
document had been complete, it would have shown "the estimated
6
Under the contract, Abbott was supposed to send Hancock the
Annual Research Plan "at least forty-five (45) days prior to the
start of each Program Year" and the Status Report "no later than
thirty (30) days before the last day of each Program Year."
Hancock was not expected to make its payments any earlier than
December 1 of the year in which they were due. The contract
allowed Hancock to delay its payments until 30 days after it had
received both the Status Report and the Annual Research Plan.
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spend for 2003 had dropped to [approximately the same amount as in
the 2003 Preliminary Annual Research Plan] and for 2004, it was at
[an amount that when added to the spending for 2001, 2002 and 2003
was less than the Aggregate Spending Target]." Given this
admission by Abbott, Abbott's "2003 Preliminary Annual Research
Plan," submitted in December 2002, failed to manifest the company's
intent to spend the required amount through 2004. As Hancock
points out, it was not relieved of its payment obligations merely
because another party failed to correct a computer glitch. If
Hancock had requested clarification of the December 20, 2002 plan,
Abbott would have stated that it no longer planed to spend the
Aggregate Spending Target by the end of 2004.
The district court provided a slightly different gloss on the
same conclusion that the terminable event happened in 2002, relying
on the principle of contract interpretation that "if possible,
effect must be given to all of the language so that provisions
which appear to be conflicting or inconsistent may be reconciled
and harmonized." In re Halas, 470 N.E.2d 960, 964 (Ill. 1984). We
also find the district court's analysis persuasive.7
As the district court concluded:
7
While the district court suggested that there was an ambiguity to
resolve in this analysis, the district court also stated that the
issue "translated into a contractual interpretation argument" and
required no parol evidence. Because a careful reading of the
contract itself resolved the issue, there was no need to resolve
any ambiguity.
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[I]t is clear [from the contract language]
that the parties intended Abbott to present an
[Annual Research Plan] prior to the start of
each Program Year that would include . . .
budgets for the remaining Program Years in the
Program Term. Thus, the parties intended that
the [Annual Research Plan] for 2003 would be
submitted to Hancock in 2002 and it would
include . . . budgets for 2003 and 2004. As a
result . . . Abbot's failure to demonstrate
its intent and reasonable expectation to
expend at least [the Aggregate Spending Target
by the end of] 2004 [] took place in 2002, not
2003.
(Emphasis added.) To hold otherwise, the district court reasoned,
would allow Abbott "to obtain two Program Payments (for 2002 and
2003) for the price of one payment obligation termination." As the
district court emphasized, the contract gives Abbott one yearly
Hancock payment for each conforming year of Abbott's performance.
The contract would be subverted if Abbott could require an extra
payment by Hancock merely because it was late in submitting
complete projections.
D. Waiver or estoppel
Abbott's final fallback argument is that Hancock waived the
right to cancel its 2003 payment by waiting until the fall of 2003
to notify Abbott that it considered its payment obligations
terminated. We agree with the district court that Hancock did
nothing that could establish a waiver or estoppel under Illinois
law.
In Illinois, waiver is the "voluntary relinquishment of a
known right, claim, or privilege." Vaughn v. Speaker,533 N.E.2d
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885, 890 (Ill. 1988). It may be "express or implied." Geier v.
Hamer Enters. Inc., 589 N.E.2d 711, 722 (Ill. App. 1992).
Equitable estoppel may be found where a party indicates through its
conduct that it will not enforce its contractual rights in a timely
fashion and the other party reasonably relies on that conduct to
its detriment. See Geddes v. Mill Creek Country Club, 751 N.E.2d
1150, 1157 (Ill. 2001). Abbott's waiver and estoppel arguments
share a common problem: they do not establish that Hancock conveyed
any intention to relinquish a contractual "right or privilege." We
discuss briefly Abbot's three principal waiver and estoppel
arguments, resolving them on this common ground.
Abbott first argues that Hancock should have made an earlier
notification that it planned to terminate its payments. However,
the contract does not contain any requirement that Hancock notify
Abbott when a terminable event occurred. To the contrary, the
contract states that "Hancock's entire obligation [under the
contract] shall be limited to providing [its] program payments."
Further, the contract provides that "[t]he waiver by either party
hereto of any right hereunder or the failure to perform or of a
breach by the other party shall not be deemed a waiver of any other
right hereunder . . .." Hancock could not waive its right to
terminate payments by failing to provide a notification that it was
not required to make.
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Abbott also contends that Hancock indicated that it was
satisfied with the December 2002 "2003 Preliminary Annual Research
Plan" by tendering its 2002 payment upon receipt of that document,
and that Abbott relied on that payment as an indication that the
December 20, 2002 plan was sufficient. But Hancock's payment for
2002 could not have been any indication that Hancock considered the
"2003 Preliminary Annual Research Plan" as compliant with Abbott's
planning obligations. Even if Hancock considered the plan a breach
by Abbott, Hancock had no choice but to make its 2002 payment.
After all, the contract provided that Hancock's payment "for the
Program Year in which [an event that allows the termination of
payments] occurs shall still be due and payable." Abbott's breach
occurred in 2002. Hancock paid for 2002. That is merely what the
contract required.
Abbott finally claims that Hancock forfeited its right to deem
the December 2002 "2003 Preliminary Annual Research Plan" a
terminable event by failing to make a timely request for a 2003
Annual Research Plan that included planned spending for 2004. This
argument represents an attempt by Abbott to shift its own
responsibilities to Hancock. The contract made it abundantly clear
that all responsibility for planning and funding rested with
Abbott. Hancock's only obligation was to provide large payments
when Abbott submitted conforming documentation. Given this
arrangement, it was reasonable for both parties to accept the "2003
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Preliminary Annual Research Plan," submitted in December 2002, as
Abbott's final word on the subject. That December 2002 plan
allowed Hancock to terminate its payments because it did not
manifest Abbott's intention to spend the contractually prescribed
amount during the Program Term (and because any request for
clarification of the document merely would have confirmed that
Abbott did not intend to spend enough during the Program Term).
Hancock did not have to ask for clarification before it deemed the
December 2002 Plan a breach by Abbott allowing it to terminate its
payments.
Affirmed.
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