Medical Equipment Distributor Awarded Significant Damages After Manufacturer Breached Contract — Chicago Business Litigation Lawyers

Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.

VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.

The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.

In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit.

Kreg’s complaint alleged breach of contract, and it sought only injunctive relief. Kreg moved for a temporary restraining order in the district court. After a hearing, the district court denied the motion. In March 2012, the parties cross-moved for summary judgment. A year later, in March 2013, the district court determined that the original agreement between Kreg and VitalGo, and the amendments added six months later, were two distinct contracts. The court also found that Poulos and Paz had met in Chicago in December 2010, and that Poulos had orally agreed to purchase $800,000 of beds in 2011, which was sufficient under the original agreement to extend the exclusivity period in the original territories for an additional year.

Based on these findings, the district court determined that Kreg had established the first three elements of its claim for breach of contract. However, the court found that Kreg had failed to establish the element of damages. The court then found that even though Kreg had not explicitly requested monetary damages, such damages could be awarded pursuant to Rule 54(c). The court then granted in part and denied in part VitalGo’s motion for summary judgment, and denied Kreg’s motion. VitalGo subsequently entered bankruptcy. Once VitalGo emerged from bankruptcy, the district court held a trial on the issue of damages and ultimately awarded Kreg $642,610 lost asset damages plus $364,593 in prejudgment interest. VitalGo then appealed.

The 7th Circuit panel began by finding that the district court did not err in determining that certain elements of Kreg’s factual assertions were undisputed, given that VitalGo’s counsel failed to comply with local court rules and failed to respond to Kreg’s assertions of fact in its summary judgment motion. The panel then found that substantial evidence supported the district court’s decision on the issue of harm, as the record detailed a significant decline in Kreg’s marketing of the beds after the breach occurred. Finally, the panel determined that the district court did not err in finding that Kreg’s damages were foreseeable and recoverable under New York law as consequential damages, given that VitalGo should have been on notice regarding the necessity of the exclusivity provisions in its agreement with Kreg. The panel, therefore, affirmed the decision of the district court.

You can read the decision here.Super Lawyers named Chicago business dispute attorney Peter Lubin a Super Lawyer and Chicago business litigation lawyer Patrick Austermuehle a Rising Star in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Chicago business trial lawyers have over thirty years of experience in litigating franchise and dealer termination, breach of contract, complex class action, copyright, partnership, and shareholder oppression suits, noncompete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes.  Our Schaumburg and Naperville franchise and dealer termination lawyers, civil litigation lawyers, and copyright attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago and Oak Brook area businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333.  You can also contact us online here.

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