The General Hospital Corporation v. Esoterix Genetic Laboratories, LLC

United States Court of Appeals
For the First Circuit
Nos. 20-2126
20-2149
THE GENERAL HOSPITAL CORPORATION; DANA-FARBER CANCER INSTITUTE,
INC.,
Plaintiffs, Appellees/Cross-Appellants,
v.
ESOTERIX GENETIC LABORATORIES, LLC,
Defendant, Appellant/Cross-Appellee,
LABORATORY CORPORATION OF AMERICA HOLDINGS, a/k/a Laboratory
Corporation of America,
Defendant, Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Indira Talwani, U.S. District Judge]
Before
Lynch, Selya, and Barron,
Circuit Judges.
Christopher R. Howe, with whom Campbell Conroy & O'Neil, P.C.,
Robert I. Steiner, Jaclyn M. Metzinger, and Kelley Drye & Warren
LLP were on brief, for defendants.
Douglas J. Nash, with whom Carolyn M. Crowley and Barclay
Damon LLP were on brief, for plaintiffs.
October 7, 2021
SELYA, Circuit Judge. Although these appeals arise out
of a dispute between sophisticated entities concerning
intellectual-property rights, they turn on abecedarian principles
of contract law. Those principles, though familiar, are often
difficult to apply. Because the court below erred in applying the
pertinent principles to the documents at hand, we vacate its
million-dollar-plus damages award and certain of its other
rulings, and we remand for further proceedings consistent with
this opinion.
I. BACKGROUND
We start by rehearsing the relevant facts and travel of
the case. The plaintiffs, The General Hospital Corporation and
Dana-Farber Cancer Institute, Inc. (collectively, the Hospitals),
own patents related to the detection of the epidermal growth factor
receptor (EGFR) mutation that, when present, suggests that certain
cancer treatments are likely to be effective. In 2005, the
Hospitals licensed the patents to a company that was in the
genetic-testing business. Under the master license agreement (the
License), the licensee is permitted to use and sell certain
products and processes covered by the EGFR-detection patents, as
well as to sublicense those same rights to third parties. In
exchange, the licensee is required to pay stipulated amounts,
including an annual license fee, royalties on its use and sales of
the processes and products, and a portion of the fees and other
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income received from sublicensees (including their royalty
payments).
Approximately five years later, the prior licensee's
rights were passed on to one of the defendants, Laboratory
Corporation of America Holdings (LabCorp), when LabCorp purchased
most of the seller's genetic-testing business. The rights later
passed to defendant Esoterix Genetic Laboratories, LLC (Esoterix)
— an entity created by LabCorp to manage the assets.
According to the License, royalties and sublicensing
fees and income are to be paid twice a year following six-month
reporting periods ending on June 30 and December 31. The License
delineates how these payments are to be computed. Royalties owed
on sales of processes, for example, are calculated by multiplying
a "royalty rate" by the "CONTRACT NET SALES," as defined, of
processes sold during a reporting period. Though simple on its
face, this calculation requires further computation to determine
the inputs. Payments owed for sublicensing arrangements are
calculated more straightforwardly: Esoterix owes the Hospitals a
fixed percentage of certain fees or income collected from
sublicensees.
In 2014, Esoterix sued QIAGEN Manchester, Ltd. and other
related entities (collectively, QIAGEN), for, inter alia, breach
of a sublicense anent the EGFR-detection patents. QIAGEN filed
counterclaims challenging the patents' validity. Esoterix and
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LabCorp eventually settled all claims with QIAGEN. They also
agreed to pay the Hospitals a portion of the settlement amount
paid by QIAGEN. The parties entered into a settlement agreement
to this effect on June 27, 2017.1 Section 3.1 of the settlement
agreement comprised a broad release, which was effective as of the
date of execution of the agreement. In it, the Hospitals released
Esoterix and LabCorp:
of, from, and with respect to, any and all
liabilities, losses, damages, charges,
complaints, claims, counterclaims,
obligations, promises, agreements,
controversies, actions, causes of action,
suits, rights, demands, costs, debts and
expenses (including attorneys' fees and court
costs) of any nature whatsoever, known or
unknown, suspected or unsuspected that may
have arisen before the Effective Date, which
[the Hospitals] may have, own or hold, or
claim to have, own or hold against [Esoterix
and LabCorp], relating to or arising from (i)
the acts or omissions that were stated in,
arose out of, or which may have arisen out of,
the [prior litigation], (ii) the Patent
Rights; (iii) the [License], including but not
limited to the provision of any notice(s)
required under the [License] or the payment of
any past royalties or other fees pursuant to
the [License] . . . .
Under the terms of the License, a reporting period closed
on June 30, 2017 (a few days after the effective date of the
1 In the sealed record, both the License and the settlement
agreement are in redacted form. The parties confirmed at oral
argument that the redacted versions contain all of the provisions
that bear on this dispute and that the omitted portions are not
material to our decision.
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release). Esoterix's royalties and sublicensing payments, along
with a semi-annual royalty report, were due within forty-five days
thereafter. Esoterix took the position that the release operated
to discharge the payment obligations for all uses and sales that
occurred before June 27. Accordingly, its report for that
reporting period supplied revenue and royalty information only for
the period between June 28 and June 30.2 The payments owed for
those few days were defrayed by application of Esoterix's annual
license fee, an offset that was permissible under the License.
Unwilling to turn the other cheek, the Hospitals brought
suit in a Massachusetts state court. Noting the existence of
diversity jurisdiction, the defendants removed the action to the
United States District Court for the District of Massachusetts.
See 28 U.S.C. §§ 1332(a), 1441. The Hospitals alleged, among other
things, that Esoterix and LabCorp violated the terms of the License
by failing to pay amounts owed for the entire reporting period
ending June 30, 2017. Soon after removal, the defendants moved to
dismiss. See Fed. R. Civ. P. 12(b)(6). The Hospitals opposed
that motion and went on the offensive, filing a motion for partial
summary judgment on their breach of contract claim.
2 The release is plain that it operates to wipe out matters
arising before — and not on or before — June 27. We thus assume
that the report did not contain royalty information for June 27
because there was none to report.
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The district court consolidated these motions for
hearing. Thereafter, the court granted the Hospitals' partial
summary judgment motion, concluding that Esoterix had not been
released from its obligation to pay royalties and sublicensing
fees for uses and sales occurring before June 27.3 See Gen. Hosp.
Corp. v. Esoterix Genetic Lab'ys, LLC, No. 18-11360, 2019 WL
4218706, at *1, *4 (D. Mass. Sept. 4, 2019). Esoterix's motion to
dismiss was denied, save for the count of the complaint that sought
reformation of the settlement agreement (count five). See id. at
*5-6. That count was dismissed as moot (due to the court's
disposition of the breach of contract claim). See id. Following
the parties' stipulation to dismiss without prejudice the
remaining claims — including those pending against LabCorp — the
court entered judgment for the Hospitals on the breach of contract
claim in an agreed-upon sum of $1,291,427.13 plus interest. The
judgment also granted the Hospitals' prayer for an audit and
accounting. These timely appeals ensued.
II. ANALYSIS
These appeals rise or fall on the Hospitals' claim that
Esoterix breached the License by failing to pay certain royalties
3The district court deemed the record insufficient to
determine whether LabCorp was liable for the breach and granted
partial summary judgment against Esoterix only. See Gen. Hosp.
Corp., 2019 WL 4218706, at *1 n.1. That ruling is not challenged
before us.
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and sublicensing fees. Our analysis of that claim begins — and
ends — with Esoterix's flagship contention: that the terms of the
release wiped out Esoterix's obligations to pay the unpaid
royalties and sublicensing fees for uses and sales that occurred
before the effective date of the release (June 27). Contrary to
the district court's determination, the terms of the release and
the License do not indicate that Esoterix's obligations arose after
the release's effective date (when they became due and payable).
We subdivide our analysis into three segments. First,
we review the text of the relevant release provision. Next, we
assess the district court's interpretation of that provision.
Finally, we address the effect of the release and explain how it
operates in this case.
For the most part, the applicable legal standards are
familiar. We review the district court's entry of summary judgment
de novo. See Mason v. Telefunken Semiconductors Am., LLC, 797
F.3d 33, 37 (1st Cir. 2015). In the course of that review, we
take the facts in the light most hospitable to the nonmovant (here,
Esoterix) and draw all reasonable inferences therefrom to that
party's behoof. See id.This case, removed from a state court, is brought in
diversity jurisdiction. See 28 U.S.C. § 1332. Thus, although we
look to federal law for the summary judgment framework, we look to
state law for the substantive rules of decision. See Mason, 797
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F.3d at 38 (citing Hanna v. Plumer, 380 U.S. 460, 473 (1965)).
The parties agree — and the choice-of-law provisions in the
settlement and license agreements reflect — that Massachusetts is
the wellspring of the relevant state law.
A. The Settlement Agreement and Release.
In matters of contract, words are the signposts that the
contracting parties use to demarcate the boundaries of their
agreement. Consequently, we begin with the text of the release
provision contained within the settlement agreement.
Under Massachusetts law, the interpretation of a
contractual provision is a question of law for the court. See NTV
Mgmt., Inc. v. Lightship Glob. Ventures, LLC, 140 N.E.3d 436, 443
(Mass. 2020); see also Bank v. Thermo Elemental Inc., 888 N.E.2d
897, 907 (Mass. 2008). "Contract language is ambiguous where the
phraseology can support a reasonable difference of opinion as to
the meaning of the words employed and the obligations undertaken."
Bank, 888 N.E.2d at 907 (quotations omitted). "[T]he parties'
intent must be gathered from a fair construction of the contract
as a whole and not by special emphasis upon any one part." Bukuras
v. Mueller Grp., LLC, 592 F.3d 255, 262 (1st Cir. 2010) (quotations
omitted) (applying Massachusetts law). Words that are "plain and
free from ambiguity" must be understood in their "usual and
ordinary sense," and a contract should be interpreted "in a
reasonable and practical way, consistent with its language,
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background, and purpose." Id. (quotations omitted). "[A]bsent
ambiguous provisions, we look solely to the language of the
contract and do not consider extrinsic evidence." NTV Mgmt., 140
N.E.3d at 443.
The principal release provision — section 3.1 of the
settlement agreement — sweeps broadly. In it, the Hospitals agreed
to:
release, waive, forever discharge, and hold
harmless [Esoterix] . . . of, from, and with
respect to, any and all liabilities, losses,
damages, charges, complaints, claims,
counterclaims, obligations, promises,
agreements, controversies, actions, causes of
action, suits, rights, demands, costs, debts
and expenses . . . of any nature whatsoever,
known or unknown, suspected or unsuspected
that may have arisen before the Effective
Date . . . relating to or arising
from . . . the [License], including but not
limited to . . . the payment of any past
royalties or other fees pursuant to the
[License] . . . .
By these terms, the parties manifestly intended to enter into a
release with many attributes of a general release — a release that
broadly discharges liability for all claims and demands, whether
known or unknown. See Eck v. Godbout, 831 N.E.2d 296, 300-01
(Mass. 2005).
The release is meaningfully limited in only two ways.
First, the release is limited temporally: it applies to any matter
that "may have arisen" before its effective date. Second, the
subject of the release is limited: the matter released must
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"relat[e] to or aris[e] from" one of the release's enumerated
topics (a taxonomy that includes the License).
Read in light of the settlement agreement as a whole,
the release is unambiguous. The adjacent release provision —
section 3.2 — releases obligations related to the QIAGEN litigation
(the underlying incident that prompted the settlement agreement).
The existence of this second (tailored) release provision confirms
that a broader release was part and parcel of the parties'
bargained-for settlement. See, e.g., Cohen v. Steve's Franchise
Co., 927 F.2d 26, 29 (1st Cir. 1991) (explaining that, under
Massachusetts law, "[a] reading rendering contract language
meaningless is to be avoided"); Oliveira v. Com. Ins. Co., 112
N.E.3d 1206, 1210 (Mass. App. Ct. 2018). It is commonplace that
"a release may be prompted by the settlement of a specific dispute
or resolution of a specific issue," and yet the parties may choose
to negotiate a general release that "operates to settle all other,
unrelated matters." Eck, 831 N.E.2d at 300-01. The release has
two meaningful limitations, but it nonetheless operates to
extinguish many matters beyond those stemming from the QIAGEN
litigation.
B. The District Court's Order.
Notwithstanding the breadth of the language in which the
release is couched, the district court held that the Hospitals'
claim for royalty payments was beyond the purview of the release.
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See Gen. Hosp. Corp., 2019 WL 4218706, at *3-4. Refined to bare
essence, the court reasoned that the Hospital's breach of contract
claim accrued when Esoterix's unpaid royalties and fees became due
and payable. See id. at *3. Because this payment deadline
occurred after the effective date of the release, the district
court determined that the breach of contract claim was not
foreclosed. See id. Relatedly, the court rejected Esoterix's
contention that its obligations to the Hospitals arose before the
payment deadline. See id. at *3-4.
The district court's focus on when the Hospitals' cause
of action accrued is insupportable. Massachusetts law is pellucid
that a broad release can encompass all matters that come within
its terms. With respect to general releases covering "any and all
claims . . . whatsoever of every name and nature," claims can be
released even if they were not in the forefront of the parties'
thinking. Eck, 831 N.E.2d at 300-01; see Radovsky v. Wexler, 173
N.E. 409, 410 (Mass. 1930) ("A general release of all demands
embraces everything included within its terms."). This is so even
when a cause of action has yet to accrue. See Eck, 831 N.E.2d at
302; see also Sword & Shield Rest., Inc. v. Amoco Oil Co., 420
N.E.2d 32, 33 (Mass. App. Ct. 1981). For instance, a contingent
obligation can be released by a general release even before
preconditions occur that would ripen that obligation into an
enforceable promise. See Radovsky, 173 N.E. at 410; see also
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Pierce v. Parker, 45 Mass. (4 Met.) 80, 89-90 (1842). The guiding
principle is that the plain meaning of the unambiguous terms of
the release control. See, e.g., Leblanc v. Friedman, 781 N.E.2d
1283, 1290-91 (Mass. 2003); Schuster v. Baskin, 236 N.E.2d 205,
208 (Mass. 1968).
The district court's reasoning contravened this guiding
principle by ignoring the terms of the release in two ways. First,
the release applies to considerably more than causes of action,
liabilities, rights or demands. It also encompasses, among other
things, "any and all" "obligations," "promises," and "debts."
Second, the release applies to all claims that "may have arisen"
before its effective date. Thus, the actual accrual of a cause of
action lacks any talismanic significance.
What counts is the meaning of "arisen," which — depending
on the object of the verb — may or may not be synonymous with the
term "accrued." See Eck, 831 N.E.2d at 302 (holding that claims
arise "at the time of the underlying incident giving rise to the
claim," which may be before any cause of action accrues in fact
(quotations omitted)); see also John Doe No. 4 v. Levine, 928
N.E.2d 951, 953 (Mass. App. Ct. 2010) ("The two terms 'arise' and
'accrue' are not synonymous."); cf. United States v. Romain, 393
F.3d 63, 74 (1st Cir. 2004) (explaining that "words are like
chameleons; they frequently have different shades of meaning
depending upon the circumstances"). It follows that an isthmian
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focus on the timing of the breach of contract claim would be
inappropriate. "When the words the parties have selected possess
a breadth enveloping myriad meanings, the judge need not rush to
play the role of augur." Fashion House, Inc. v. K Mart Corp., 892
F.2d 1076, 1084 (1st Cir. 1989).
C. The Effect of the Release.
Setting to one side the district court's reasoning, we
consider afresh the extent to which the release covered Esoterix's
unpaid royalties and other payment obligations. The "ordinary
sense," Bukuras, 592 F.3d at 262, of the term "obligations," as
used in the release, is wide-ranging and easily accommodates a
duty to pay royalties and sublicensing fees. Nor do the Hospitals
dispute that Esoterix's unfulfilled obligations "relate" to the
License (a subject matter specified in the release). The analysis
of the release's effect, then, reduces to what extent — if at all
— Esoterix's obligations "may have arisen" before the effective
date of the release. When reading the term "arisen," in
conjunction with the object "obligation," the pivotal question
becomes whether Esoterix's royalty and sublicensing fee
obligations may have originated before June 27, 2017. To answer
this question, we turn to the meat of the parties' financial
arrangements.
The royalty and sublicensing fee provisions of the
License make plain that Esoterix's obligations arise upon its sales
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of processes and products, on the one hand, and its receipt of
sublicensing income, on the other hand. The License provides, in
relevant part, that Esoterix "shall pay" a royalty for sales of
processes or products. License § 4.5(a)-(b). The obligatory
language — "shall pay" — is modified. A royalty is paid
"[b]eginning with the first COMMERCIAL SALE," id. — defined as
having been "completed at the time [Esoterix] records a sale," id.
§ 1.6 — and "continuing during the term of the [License]," id.
§ 4.5(a)-(b). Thus, a royalty obligation arises when the sale is
first recorded. That Esoterix must pay a royalty "continuing"
during the agreement's term confirms that royalties are
continually owed upon sales until the license runs its course.
For sublicensing fees and other income, Esoterix "shall
pay" the Hospitals a percentage of "any and all fees" and of "any
royalty or similar payments." Id. § 4.6(a)-(b). The terms "fees"
and "royalty or similar payments" are each modified by past
participles — "actually received" and "paid," respectively. Id.
Past participles can be "used as adjectives to describe the present
state of a thing," Henson v. Santander Consumer USA Inc., 137 S.
Ct. 1718, 1722 (2017), and also can "indicate[] past or completed
action," Fla. Dep't of Revenue v. Piccadilly Cafeterias, Inc., 554
U.S. 33, 39 (2008). Read in context, the past participles of "to
receive" and "to pay" suggest that those actions must have occurred
for Esoterix's payments to be required. In other words, Esoterix
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owes a portion of sublicensing money when that money has been
received by Esoterix or paid to it. The upshot is that Esoterix's
obligations to pay sublicensing fees and other income originate as
Esoterix receives the fruits of its sublicensing rights.
The structure of Esoterix's royalty and other payments
lends further support to this interpretation. Apart from certain
annual fees, see License § 4.3, Esoterix's other monetary
obligations are structured to be proportional to sales (though the
method of accounting when a sale occurs varies). The royalties
owed on products, for example, are just a percentage of "NET
SALES," see id. § 4.5(b), which are defined as occurring when
Esoterix receives the amount payable, see id. § 1.22(c). Royalties
owed on processes are amounts that are keyed both to sales and to
utilization. See id. § 4.5(a).4 That the amounts owed are tied
to actual sales reinforces an inference that Esoterix's
obligations arise from exercising its licensing rights. And this
inference is buttressed by the logic that undergirds patent license
royalties in general. Such royalties, in effect, allow licensees
to engage in conduct that otherwise might constitute patent
infringement. See Spindelfabrik Suessen-Schurr, Stahlecker &
4 Viewed from 50,000 feet, the amount is calculated by
multiplying a royalty rate based on the utilization of the
processes from the prior reporting period — defined in the License
as the "AVERAGE REIMBURSEMENT" — against a base that also tracks
sales through the "number of PROCESSES invoiced to THIRD PARTIES
during the current REPORTING PERIOD." See License §§ 1.34, 4.5(a).
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Grill GmbH v. Schubert & Salzer Maschinenfabrik
Aktiengesellschaft, 829 F.2d 1075, 1081 (Fed. Cir. 1987) ("[A]
patent license agreement is in essence nothing more than a promise
by the licensor not to sue the licensee."); see also 3 Roger M.
Milgrim, Milgrim on Trade Secrets § 10.02 (2021) (differentiating
between patent and trade secret licenses). "In this sense, [a]
patent license royalty is much like the payment of tolls on a
bridge or turnpike." Milgrim, supra, § 10.02. A duty to pay would
logically originate when and as the responsible party engages in
the licensed conduct.
The Hospitals demur. In their view, Esoterix's
unfulfilled royalty and other fee obligations — for uses and sales
that occurred before June 27 — arose when the payments became due
and payable. Stripped of rhetorical flourishes, the Hospitals
seek to uphold the judgment on their breach of contract claim by
focusing on when the Hospitals' right to demand payment came into
existence and when the breach of contract claim accrued. Were
this focus correct, the net result would be that the release did
not extinguish Esoterix's obligation to pay the unpaid amounts
because they became due only after the release's effective date.
But the Hospitals' focus is incorrect. Their thesis, at
bottom, rests on an assumption that there is a condition precedent
requiring that the amounts owed are due and payable before the
obligations can arise. See Mass. Mun. Wholesale Elec. Co. v. Town
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of Danvers, 577 N.E.2d 283, 288 (Mass. 1991) (defining condition
precedent under Massachusetts law as an event that must occur
"before an obligation to perform arises under the contract"). Even
so, the Hospitals have not mustered any plausible support for their
thesis from within the four corners of the License. The absence
of such support is telling. "Emphatic words are generally
considered necessary to create a condition precedent that will
limit or forfeit rights under an agreement." Id. (quotations
omitted); see Restatement (Second) of Contracts § 226 cmt. a (Am.
L. Inst. 1981) (explaining that words that create a condition
precedent are "on condition that," "provided that," and "if"). A
searching examination of the License leaves no doubt but that it
is devoid of any terms that suggest that the obligations must be
due or payable before they are deemed to originate. Rather, the
royalty provisions' due and payable clauses are run-of-the-mine.
See License §§ 4.5(e), 4.6(d) (stating that payments required by
sections 4.5 and 4.6 "shall be due and payable" "within forty-five
(45) days after the end of the REPORTING PERIOD" and that, for
section 4.5, the first royalty payment would not be due for some
specified time).
Nor is the "intent of the parties to create [a condition
precedent] clearly manifested in the contract as a whole." Mass.
Mun., 577 N.E.2d at 288. For example, no provisions indicate that
the obligations arise upon demand or assessment. In point of fact,
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the termination provision shows just the opposite. It states that
"all royalties and other payments . . . accrued or due to [the
Hospitals] as of the termination date shall become immediately
payable." License § 10.7. This language clearly evinces the
parties' understanding that royalty and sublicense fee obligations
have significance independent of any contractual obligation to
make timely payments. If a party terminated the License during a
reporting period, Esoterix would still owe the monetary
obligations that arose during that period even though those
obligations were not yet payable.
Without any plausible support in the License, the
Hospitals' asseverations defy common sense. A payment deadline
may be informative as to when a breach for failure to pay occurs.
Standing alone, though, it does not shed light on when a royalty
obligation is incurred. After all, the postponement of a debt
payment does not mean that the debt has not already been created;
it means only that the payment is not yet required. For example,
a bank may lend a homeowner $300,000, yet postpone payment
obligations incrementally in line with a twenty-year repayment
amortization schedule. That only a fraction of the principal is
due each month does not mean, at any point in time, that the
homeowner is absolved of her overall obligation to repay the entire
loan balance.
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The Hospitals' contention that Esoterix's payment
obligations cannot arise until they are calculable is no more
logical. Here, moreover, it is apparent that the royalties and
sublicensing fees may be calculated at any time (even before the
end of a reporting period when they become due). The royalty
payments for processes are based on an equation in which all but
one of the variables are known from the prior period. The single
unknown variable is the number of processes invoiced to third
parties during the current reporting period, which can be assessed
at any time. See id. § 4.5(a). The royalties for products and
payments related to sublicensing are just a percentage of payments
and income received. See id. §§ 4.5(b), 4.6(a)-(b). These, too,
are calculations that can be performed before the end of a
reporting period.
The Hospitals identify two other potential cures for the
infirmities that plague their position. On close scrutiny, though,
neither potential cure proves to be a panacea.
To begin, the Hospitals say that even if the relevant
payments are calculable on an incremental basis, they had "no way
of knowing if any royalty would be due." This may be true, but it
does not move the needle in the Hospitals' direction. The critical
fact is that the release applies to obligations "known or unknown."
The Hospitals' second therapeutic fares no better. They
implore us to consider the circumstances surrounding the
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settlement. The settlement discussions, the Hospitals insist,
show that the parties never intended the result that Esoterix now
seeks. Building on a provision in the release that deals with
"the payment of any past royalties," they argue that the release
applies only to the "past royalties" at stake in the QIAGEN
litigation. This argument, though, encounters strong headwinds
under Massachusetts law.
Examination of extrinsic evidence is improper where, as
here, the terms of a contract are neither vague nor ambiguous.
See NTV Mgmt., 140 N.E.3d at 443. This rule applies with full
force to releases. See Radovsky, 173 N.E. at 410 ("A release which
is absolute and unequivocal in its terms cannot be explained by
parol evidence.").
To be sure, this general rule is susceptible to an
exception under which extrinsic evidence can be used to "determine
whether an apparently clear term is actually uncertain." Smart v.
Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 179 (1st Cir.
1995). This exception, though, has no bearing here. The reference
in the release to "past royalties" — the proffered textual hook on
which the asserted relevance of the settlement discussions is hung
— appears in a clause that does nothing to limit the broad scope
of the release. It follows the phrase, "including but not limited
to," and extrinsic evidence cannot write that phrase out of the
release. See id. at 180 (explaining that extrinsic evidence cannot
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"be employed to contradict explicit contract language or to drain
an agreement's text of all content save ink and paper"). The
release plainly applies to any and all of Esoterix's royalty
obligations under the License, which arose prior to the release's
effective date. And that holds true whether or not those royalties
relate to the QIAGEN litigation.
The breadth of the release was by choice of the
contracting parties. Courts should not attempt to "accomplish by
judicial fiat what [a party] neglected to achieve contractually."
FDIC v. Singh, 977 F.2d 18, 23 (1st Cir. 1992) (alteration in
original) (quotations omitted). That admonition has special force
where, as here, the parties are sophisticated entities that
negotiated a release with the benefit of counsel. In signing the
settlement agreement, the parties acknowledged that they had been
"specifically advised" of the "consequences . . . and their
respective rights and obligations." We are not at liberty to
rewrite this bargained-for arrangement.
To sum up, the terms of the License show that Esoterix's
royalty and sublicensing fee obligations arise upon its sales of
processes and products and its receipt of sublicensing income,
respectively. As such, the unpaid obligations arose prior to the
effective date of the release and, thus, were extinguished by it.
In the absence of a duty to pay those amounts, there could be no
breach of the License, and judgment should not have entered in
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favor of the Hospitals on their breach of contract claim. Instead,
the district court should have granted Esoterix's motion to dismiss
that claim.
D. Tying Up Loose Ends.
In addition to having ruled in favor of the Hospitals on
their breach of contract claim, the district court made certain
other rulings. Two of these other rulings require our attention.
The district court denied the defendants' motion to
dismiss the Hospitals' claim of entitlement to a full audit and
accounting of the relevant records for the reporting period ending
June 30, 2017. See Gen. Hosp. Corp., 2019 WL 4218706, at *5. The
court determined that it would award injunctive relief on that
claim, see id. at *6, and entered judgment thereon in favor of the
Hospitals. This grant of relief draws its essence from section
5.4 of the License, which gives the Hospitals audit rights "solely
for examination during normal business hours to verify any reports
and payments made under, and/or to determine compliance in other
respects with, [the License]." License § 5.4. Without Esoterix's
duty to pay the unpaid amounts, the Hospitals' right to an audit
and accounting to "verify" or "determine compliance" as to those
payments would cease to exist. Given our holding that the
Hospitals have released Esoterix with respect to all obligations
incurred up to June 27, 2017, the Hospitals are entitled to payment
for only four days of the reporting period that they wish to audit.
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This curtailment in the period that is open to audit may
very well influence both the Hospitals' desire for the audit and
the district court's determination that one is required
(especially in view of the License-fee setoff). We think it
sensible, therefore, to vacate the judgment as to the audit-and-
accounting claim; without prejudice, however, to the Hospitals'
right to renew their request if they wish to do so under the
materially changed circumstances.
The defendants also moved to dismiss count five — the
Hospitals' claim for reformation of contract (the settlement
agreement) — based on mistake. See Gen. Hosp. Corp., 2019 WL
4218706, at *5. The district court granted the motion as to the
claim, dismissing it as moot. See id. Given the collapse of the
Hospitals' breach of contract claim, see supra Part II(C), the
reformation claim is no longer moot. Since the district court did
not decide the motion to dismiss count five on the merits, we
vacate the order of dismissal so as to allow the district court to
consider this repositioned claim in the first instance. See
Hochendoner v. Genzyme Corp., 823 F.3d 724, 735 (1st Cir. 2016).
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we vacate the judgment in favor of the Hospitals as to the breach
of contract claim and direct the district court to enter judgment
granting Esoterix's motion to dismiss that claim. We vacate the
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judgment as to the audit-and-accounting and reformation claims,
without prejudice. We leave the judgment undisturbed as to all
claims not specifically mentioned and remand the matter to the
district court for further proceedings consistent with this
opinion. Costs shall be taxed in favor of the defendants.
So Ordered.
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