Todd Mortier v. LivaNova USA, Inc. ( 2023 )

United States Court of Appeals
For the Eighth Circuit
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No. 22-2125
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Todd J. Mortier, as Member Representative of the former Members of Caisson
Interventional, LLC
Plaintiff - Appellant
v.
LivaNova USA, Inc.
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota
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Submitted: February 14, 2023
Filed: June 29, 2023
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Before LOKEN, COLLOTON, and BENTON, Circuit Judges.
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BENTON, Circuit Judge.
Todd J. Mortier invented a medical device. He sold it to LivaNova USA, Inc.
in order to develop and bring to market. When LivaNova shut down the project, he
sued. The district court 1 granted summary judgment for LivaNova. Mortier
appeals.2 Having jurisdiction under 28 U.S.C. § 1291, this court affirms.
I.
Mortier and a colleague imagined a less-invasive treatment for mitral valve
disease, a heart condition then primarily treated with open-heart surgery. His
transcatheter mitral valve replacement (TMVR) device would be inserted into a vein
in the groin, navigate to the heart, and then anchor to the diseased heart valve with
flared feet. Mortier and his colleague secured provisional patents and created a new
company, Caisson Interventional, LLC, to develop the TMVR system.
In 2012, Caisson contracted with LivaNova, a multi-national medical-device
company, to advance the TMVR system. LivaNova agreed to periodically purchase
Caisson stock as the device met developmental and regulatory milestones. When
the device achieved a CE Mark, 3 LivaNova had the option to purchase all remaining
Caisson stock. Over the next four years, LivaNova provided funds as Caisson met
milestones. By 2016, LivaNova had invested $23 million in Caisson and owned
49.1% of its stock.
The parties decided that LivaNova would buy Caisson’s remaining equity
even though the device had not yet acquired a CE Mark. They executed a Unit
Purchase Agreement in May 2017. LivaNova agreed to pay up to $72 million, split
1
The Honorable Eric C. Tostrud, United States District Court Judge for the
District of Minnesota.
2
The opinion of June 2, 2023 is modified on the Court’s own motion.
3
The CE (Conformitè Europëene) Mark confirms that a product meets all
relevant European requirement and can be sold in the European Union. See Your
Europe, CE Marking (last visited Aug.13, 2023), available at
https://europa.eu/youreurope/business/product-requirements/labels-markings/ce-
marking/index_en.htm.
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between upfront money and milestone payments. After executing the UPA,
Caisson’s founders continued developing the device as an independent team within
LivaNova.
Two UPA provisions matter. Section 4.3 defines LivaNova’s obligations to
advance the device’s development and facilitate the milestone payments. Section
7.13 stated that LivaNova had adequate financial resources to satisfy its obligations
under the agreement.
After joining LivaNova, Caisson struggled. In 2017 and 2018, it received less
money from LivaNova than initially budgeted. Things worsened in late 2018—the
device, due to a design defect, killed two clinical-trial patients and injured several
others. As Caisson’s clinical trials floundered, a competitor’s bore fruit. Not only
did the competitor’s device successfully treat the problem Caisson aimed to solve,
but it also did so less invasively than the Caisson device.
LivaNova encountered some problems of its own. It paid substantially more
than anticipated to settle a large lawsuit, missed its revenue-and-earnings targets by
a large margin, and restructured under new management.
This all spurred changes for Caisson. LivaNova revised Caisson’s business
plan in early 2019, noting that the project still held significant upside but entailed
significant risk, too. The device would have to be redesigned and retested, requiring
extensive funding before it could hope for regulatory approval and profit.
LivaNova decided to cut Caisson. It first tried selling the project, retaining
Goldman Sachs to approach potential buyers. When that went nowhere, LivaNova
shut down the Caisson project. LivaNova had spent over $100 million on Caisson.
It did not earn a cent.
Mortier—believing that the UPA prevented LivaNova from shutting down
Caisson like it did—sued for the $39.6 million potentially due if the device had
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reached all three remaining UPA milestones: CE Mark approval, FDA premarket
authorization, and $108 million in sales in the first ten years. The district court
granted summary judgment for LivaNova. Mortier appeals, arguing that LivaNova
breached sections 4.3 and 7.13 of the UPA and its duties of good faith and fair
dealing under the UPA.
“This court reviews de novo a grant of summary judgment.” Torgerson v.
City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). This court affirms
if there is “no genuine issue as to any material fact and the movant is entitled to
judgment as a matter of law.” Id., quoting Fed. R. Civ. P. 56(c)(2). “A fact is
‘material’ if it may ‘affect the outcome of the suit.’” Erickson v. Nationstar Mortg.,
LLC, 31 F.4th 1044, 1048 (8th Cir. 2022), quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). There exists “a genuine issue for trial” where a rational
trier of fact, considering the record “as a whole,” could find for the nonmoving party.
Torgerson, 643 F.3d at 1042, quoting Ricci v. DeStefano, 557 U.S. 557, 586 (2009).
II.
Mortier brings two breach-of-contract claims. Both require interpreting the
parties’ contract, the UPA, under Delaware law. See UPA § 11.4. “[C]lear and
unambiguous [contract] terms are interpreted according to their ordinary and usual
meaning.” Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009). Courts
“give priority to the parties’ intentions as reflected in the four corners of the
agreement.” GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d
776, 779 (Del. 2012). When contract language is ambiguous, courts “look beyond
the language of the contract to ascertain the parties’ intentions,” but “[a] contract is
not rendered ambiguous simply because the parties do not agree upon its proper
construction.” Id. at 780.
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A.
Mortier argues that LivaNova breached section 4.3 of the UPA by shuttering
Caisson. Section 4.3 reads (italics added):
Section 4.3 Purchaser and Company Efforts. Purchaser
[LivaNova] shall, and shall cause the Company to,
undertake such efforts and use such level of care to obtain
or achieve, and make business decisions related to
obtaining, achieving, (a) the CE Mark Achievement and (b)
PMA, as are consistent with the efforts and level of care
and business decisions Purchaser and its affiliates employ
generally in the process of seeking, prosecuting and
eventually obtaining product regulatory approvals
worldwide from time to time, including considerations with
regard to the cost/benefit, internal rate of return and return
on investment of such business decisions. Purchaser shall
also, and shall also cause the Company to, undertake such
efforts and business decisions with respect to sales of
Covered Products, which are subject to the Earn-Out
Payments as are consistent with the efforts and level of care
and business decisions Purchaser and its affiliates employ
generally in their business from time to time.
The parties dispute the meaning of LivaNova’s obligation to be “consistent
with the efforts and level of care and business decisions [LivaNova] and its affiliates
employ generally.” Mortier emphasizes the obligation to act “consistent with” the
(1) efforts, (2) levels of care, and (3) business decisions employed in LivaNova’s
other projects. LivaNova stresses the authorization to act as it “generally” does.
A proper construction of the UPA effectuates both the words “consistent” and
“generally.” See E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d
1108, 1113 (Del. 1985) (“[A] court must construe the agreement as a whole, giving
effect to all provisions therein.”). LivaNova had to make its usual efforts, exercise
its usual level of care, and make its usual type of business decisions—which is
treating Caisson “consistent with” the way it “generally” treated its projects. In other
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words, the UPA requires evaluating LivaNova’s actions against a counterfactual: the
“general” way that LivaNova would fund a project with Caisson’s promises and
perils. Acts not “consistent” with this “general” approach would breach the UPA.
Mortier argues that LivaNova failed to act consistently with its general
approach. Even if shutting down Caisson appears normal for the average business,
he claims, LivaNova “generally employed” special efforts, care, and business
decisions that, per the UPA, had to extend to Caisson. His argument begins by
inferring a “general” approach to Caisson’s development from LivaNova’s other
developmental projects. With this LivaNova-specific standard in hand, he then
argues that treating Caisson differently than other projects breached the UPA.
Mortier’s reasoning is sound, but the record belies his claim. Evidence that
LivaNova treated similarly situated companies differently than it treated Caisson
might carry Mortier’s claim past summary judgment. Cf. Wimbley v. Cashion, 588
F.3d 959, 962 (8th Cir. 2009) (disparate treatment of the plaintiff and another
employee “similarly situated in all relevant respects” allows race- and sex-
discrimination claims to survive summary judgment). But Mortier points to no such
evidence in the record—Caisson’s particularities undercut Mortier’s premise that a
“general approach” to its development can be inferred from LivaNova’s other
projects. When Mortier argues that Caisson was treated differently than other
projects, LivaNova presents evidence that Caisson was different than other projects.
With only apples-to-oranges comparisons available on this record, Mortier cannot
establish a “general” approach to developing the unique Caisson device and thus
cannot show inconsistency with the UPA’s requirements. See VLIW Tech., LLC v.
Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003) (breaching a contractual
obligation required for breach-of-contract claims).
Consider the main difference between Caisson and LivaNova’s other projects.
Caisson’s “setbacks” led LivaNova to shut it down rather than plow ahead. Mortier
notes that four other projects suffered setbacks without shutdowns. This proves, the
argument goes, that LivaNova “employ[s] generally” a practice of soldiering
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through difficulties when developing a device like Caisson, and so LivaNova had to
continue with Caisson despite its challenges.
In this case, however, the other projects’ challenges differ too greatly from
Caisson’s to show a general approach to setbacks. Caisson faced three roadblocks:
a competitor’s device was flourishing, its own device was lethally defective on two
occasions, and projections characterized it as “high risk” of regulatory rejection and
commercial failure. No other LivaNova project faced the same confluence of
challenges. Three of the projects suffered only minor setbacks like low study
enrollment. The one project where a device being developed by LivaNova caused
patient deaths, ImThera, was categorized as medium rather than high-risk. These
four projects do not establish LivaNova’s “general[]” practice for a device like
Caisson and thus cannot support Mortier’s argument that LivaNova departed from
its usual approach.
Mortier’s other claimed inconsistencies falter on the same shoal. His claim
that LivaNova shut down Caisson in part to avoid tax liability does not allege that
LivaNova “generally” would not shut down projects to avoid tax liability. His claim
that LivaNova chose inexperienced Goldman Sachs bankers for the sale does not
aver that LivaNova “generally” chose better bankers. And his claim that LivaNova
kept Caisson independent from the corporate structure does not establish that
LivaNova “generally” integrated projects with independent-minded founders like
Caisson’s.
Even Mortier’s strongest evidence suffers a similar infirmity. Comparing
Caisson and ImThera, a former LivaNova executive testified that LivaNova “didn’t
employ the same level of effort and care and the same level of commitment to
remediate the problems that occurred in the development.” The executive’s
testimony, accepted as true on appeal, shows only that LivaNova treated Caisson
differently than it treated ImThera. But the UPA does not require consistency with
ImThera—it requires consistency with LivaNova’s general efforts, care, and
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business practices. That a single different project with different characteristics
received different treatment does not show that LivaNova breached the UPA.
Unable to establish LivaNova’s general practices through project-by-project
comparison, Mortier argues that the phrase “business decisions . . . employ[ed]
generally” sets a standard of care that LivaNova breached. The ordinary meaning
of that phrase undermines his argument. See Paul, 974 A.2d 145 (giving terms “their
ordinary and usual meaning). LivaNova supported its acts with sensible
contemporaneous explanations. Caisson sputtered. It suffered patient deaths and
required a redesign. Competitors, meanwhile, enjoyed breakthroughs. Righting the
ship would have required significant time and expense, and even then Caisson
carried high risk of failure. LivaNova’s internal documents show serious doubt
about Caisson’s financial and technical viability, even though regulatory approval
remained possible and Caisson scored well on at least one metric, the internal rate
of return. Applying an “ordinary and usual” understanding of the contract, id.,shutting down Caisson appeared in line with the efforts, care, and business decisions
that LivaNova would “employ generally in [its] business from time to time.”
Because LivaNova did not breach the UPA’s unambiguous requirements, the
district court properly dismissed Mortier’s breach-of-contract claim. See VLIW
Tech., 840 A.2d at 612. See also GMG Cap. Invs., 36 A.3d 776, 780 (“A contract
is not rendered ambiguous simply because the parties do not agree upon its proper
construction.”).
B.
Mortier alleges a second breach, this one caused by LivaNova’s failure to
maintain the capital it promised. UPA section 7.13 reads:
The Purchaser [LivaNova] hereby represents and warrants
to the Members and the company [Mortier and Caisson]
that:
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Section 7.13 Adequacy of Funds; Solvency. Purchaser has
adequate financial resources and cash to satisfy its
monetary and other obligations under this Agreement.
After giving effect to the transactions contemplated by this
Agreement and assuming the truth and accuracy in all
material respects of the representations and warranties of
the Company under this Agreement, on a consolidated
basis (a) the fair value of the properties of Purchaser will
exceed its debts and liabilities, subordinated, contingent or
otherwise; (b) the present fair saleable value of the
Purchaser’s property will be greater than the amount that
will be required to pay the probable liability of its debts and
other liabilities, subordinated, contingent or otherwise, as
such debts and other liabilities become absolute and
matured; (c) Purchaser will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and (d)
Purchaser will not have unreasonably small capital with
which to conduct the business in which it is engaged as
such business is now conducted and is proposed to be
conducted following the consummation of the transactions
completed hereby.
The parties again dispute the contract’s interpretation. Mortier, emphasizing
future-tense language (“Purchaser will not have unreasonably small capital . . .”),
argues that section 7.13 created a continuing warranty to maintain “sufficient
financial resources and cash on hand to prevent the kind of sacrificial decision that
LivaNova ultimately made with Caisson.” LivaNova, emphasizing present-tense
verbs (“Purchaser has adequate financial resources . . .”), argues that “the warranty
on adequate funding applies only at the time of closing, not later.”
Applying the principles of contract interpretation outlined above, this court
finds that the section imposed upon LivaNova, at most, a limited future obligation
to maintain enough capital to fulfill its UPA obligations. The section did not impose
a boundless future obligation to remain solvent. Mortier underscores the sentence
“(d) Purchaser will not have unreasonably small capital with which to conduct the
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business in which it is engaged.” Properly understood, this is a guarantee of
solvency only after paying the purchase and closing costs. The introductory
language makes this clear: “After giving effect to the transactions contemplated by
this Agreement . . . (d) Purchaser will not have unreasonably small capital with
which to conduct the business in which it is engaged.” See Martin Marietta
Materials, Inc. v. Vulcan Materials Co., 68 A.3d 1208, 1225 (Del. 2012) (“[A]ll
contract provisions [should] be harmonized and given effect where possible.”).
Section 7.13’s first sentence is key to understanding LivaNova’s limited
future obligation: “Purchaser has adequate financial resources and cash to satisfy its
monetary and other obligations under this Agreement.” (emphasis added). One
“other obligation under [the UPA],” Mortier points out, is section 4.3’s obligation to
use “the efforts and level of care and business decisions Purchaser and its affiliates
employ generally in their business from time to time.” Construed as a whole, the
contract warranted that LivaNova had “adequate financial resources and cash” to
employ “the efforts and level of care and business decisions” generally used. See
GMG Capital Invs., 36 A.3d at 779 (“[A] court must construe the agreement as a
whole, giving effect to all provisions therein.”).
Other than section 4.3—which, as discussed, LivaNova did not breach—
Mortier identifies no “other obligations under [the UPA]” allegedly breached by
LivaNova’s inadequate financial resources. If the UPA had vaguely required
financial resources be “adequate” like some contracts require efforts be
“reasonable,” a jury might have to decide the issue. See, e.g., In re Prime Realty,
Inc., 380 B.R. 529, 534 (B.A.P. 8th Cir. 2007). But the contract here required funds
to be adequate for a particular purpose; namely, satisfying other UPA obligations.
Finding no indication in the record or briefs that LivaNova breached any “other
obligation” due to inadequate financial resources, this court concludes that Mortier
did not create a genuine factual dispute about whether LivaNova breached section
7.13.
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III.
In “rare” cases, Delaware courts imply a contract term necessary to fulfill the
parties’ “reasonable expectations.” Dunlap v. State Farm Fire & Cas. Co., 878
A.2d 434, 442 (Del. 2005). This is done only “when it is clear from the writing that
the contracting parties would have agreed to proscribe the act complained of . . . had
they thought to negotiate.” Id. The Delaware Supreme Court has cautioned:
“Implying terms into a written contract should be a cautious enterprise.” Murfey v.
WHC Ventures, LLC, 236 A.3d 337, 350 (Del. 2020). See also Allied Capital Corp.
v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1032 (Del. Ch. 2006) (cautioning courts
“not to overestimate the circumstances when it is appropriate” to find an implied
covenant of good faith, which requires an “intrinsically counterfactual and
hindsight-bias prone test.”).
Mortier proposes two implied contractual clauses. Neither works. First, he
suggests an implied covenant to avoid arbitrary and unreasonable decision-making
about Caisson’s development. Section 4.3 of the UPA already contains a similar
clause, which precludes implying it. See Oxbow Carbon & Mins. Holdings, Inc. v.
Crestview-Oxbow Acquisition, LLC, 202 A.3d 482, 507 (Del. 2019) (implied
covenants should be used only “when the contract is truly silent concerning the
matter at hand”).
Second, Mortier retreats to the narrower claim that the implied covenant
required LivaNova sell Caisson in a particular way. This claim fails to clear the high
hurdle Delaware sets for implied covenants between sophisticated parties. See
Glaxo Grp. Ltd. v. DRIT LP, 248 A.3d 911, 919 (Del. 2021). Mortier offers no
evidence that, had the parties “thought to negotiate” about the sale, they “would have
agreed” to a contract forbidding LivaNova from using Goldman Sachs to attempt a
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sale. Dunlap, 878 A.2d at 442. Without such evidence, Mortier’s implied-contract
claim cannot survive summary judgment. 4
IV.
In sum, because the UPA is not ambiguous, its plain language “is the sole
source for gaining an understanding of intent” and this court may not “destroy or
twist [the] language under the guise of construing it.” Fairstead Cap. Mgmt. LLC
v. Blodgett, 288 A.3d 729, 759 (Del. Ch. 2023), quoting Rhone-Poulenc Basic
Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del. 1992) and City
Investing Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993).
Even if this court could look beyond the UPA’s language, this case shows the
wisdom of “[h]olding sophisticated contracting parties to their agreement.” Glaxo
Grp., 248 A.3d at 919. Uncertainty and risk pervade medical device development—
even the most promising ideas require tremendous investment and face uphill battles.
Caisson’s founders, wanting to reap the rewards of commercial success, selected a
classic market-based solution: aligned profit incentives. The UPA guaranteed that,
whether Caisson prospered or failed, LivaNova and Mortier would be in the same
boat. But when Caisson crashed, Mortier disavowed the UPA’s structural profit-
incentive-alignment.
The fact is, the device did not work well enough to trigger a contractual
obligation. Mortier may be unhappy or wish for a stricter contract, but “[p]arties
have a right to enter into good and bad contracts,” and “the court’s role is to enforce
the agreement as written.” Id.
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4
Because this court affirms dismissal of Mortier’s claims on the merits, it need
not address LivaNova’s request to dismiss the suit for claiming impermissibly
speculative damages.
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The judgment is affirmed.
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