Sofregen Medical, Inc. v. Allergan Sales, LLC

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
SOFREGEN MEDICAL INC., a Delaware )
Corporation; and SOFREGEN MEDICAL )
IRELAND LIMITED, an Irish Private )
Limited Company, )
)
Plaintiffs/Counterclaim- )
Defendants, )
)
v. )
) C.A. No.: N20C-03-319 EMD CCLD
ALLERGAN SALES, LLC, a Delaware )
Limited Liability Company; and )
ALLERGAN PHARMACEUTICALS )
HOLDINGS (IRELAND), an Irish )
Incorporated Private Unlimited Liability )
Company, )
)
Defendants/Counterclaim- )
Plaintiffs. )
DECISION AFTER TRIAL
Brian M. Rostocki, Esquire, Benjamin P. Chapple, Esquire, Anne M. Steadman, Esquire, Reed
Smith LLP, Wilmington, Delaware. Attorneys for Defendants/Counterclaim-Plaintiffs Allergan
Sales, LLC and Allergan Pharmaceuticals Holdings (Ireland).
Thomas A. Uebler, Esquire, Kathleen A. Murphy, Esquire, Adam J. Waskie, McCollom
D’Emilio Smith Uebler LLC, Wilmington, Delaware. Attorneys for Plaintiffs/Counterclaim-
Defendants Sofregen Medical Inc. and Sofregen Medical Ireland Limited.
DAVIS, J.
I. INTRODUCTION
This is a breach of contract and fraudulent inducement action assigned to the Complex
Commercial Litigation Division of this Court. In November 2016, Plaintiffs Sofregen Medical
Inc. and Sofregen Medical Ireland Limited (collectively, “Sofregen”) purchased from Allergan
Sales, LLC and Allergan Pharmaceuticals Holdings (Ireland) (collectively, “Allergan”) certain
“silk biomaterial surgical mesh” (“SERI”) products for use in reconstructive surgeries.1 The
purchase occurred via an asset purchase agreement (the “APA”) between Sofregen and
Allergan.2 Sofregen conducted due diligence prior to the execution of the APA.3 However, after
the APA was executed, Sofregen allegedly discovered for the first time that Allergan omitted
troubling, material clinical studies from the documents it shared with Sofregen.4 Further,
Sofregen discovered that some of the inventory allegedly covered by the APA was missing.5 As
a result, Sofregen filed this action on March 31, 2020.6
II. PROCEDURAL BACKGROUND
Sofregen filed a Second Amended Complaint on July 23, 2020, against Allergan for (1)
breach of representations and warranties, (2) breach of contract, and (3) fraudulent inducement.7
Allergan asserted counterclaims on May 3, 2021, for a declaratory judgment and two breaches of
contract.8 One counterclaim relates to Sofregen’s alleged failure to consult with Allergan in
related litigation, which was required by the APA.9 Another relates to Sofregen’s failure to pay
1
Second Amended Complaint (“Second Am. Compl.”) ¶ 1. D.I. No. 20.
2
Id.
3
See id. ¶¶ 32-33.
4
Id. ¶ 34.
5
Id. ¶ 50.
6
Original Complaint (“Compl.”). D.I. No. 1.
7
See Second Am. Compl.
8
Defendants’ Counterclaims (“Defs.’ Countercls.”). D.I. No. 46.
9
Id. ¶¶ 109-15.
1
Allergan its share of sale proceeds as required by the APA.10 The final counterclaim is for a
declaratory judgment.11
Allergan filed a motion to dismiss all three counts in the Second Amended Complaint.12
The Court denied the motion.13 Later, the parties stipulated to a dismissal of Count I (breach of
representations and warranties).14 Allergan moved for summary judgment on Sofregen’s
remaining claims and Allergan’s counterclaims (the “Motion”).15 The Court heard argument on
the Motion on December 6, 2022. The Court denied the Motion on February 3, 2023.16
III. THE TRIAL
The Court held a bench trial from June 5, 2023, through June 8, 2023 (collectively, the
“Trial”). After Trial, the parties engaged in post-trial briefing.
A. THE WITNESSES
During the Trial, the Court heard from and considered testimony from the following
witnesses:
Dr. Anh Hoang Lindsay
Philippe Schaison
Christopher White
Howard Weisman
Daniel Huff
Dr. Jedediah Kaufman
Peter D. Wrobel
Kevin Green
Dr. Karen M. Decker
Carrie Strom
William G. Krieger
10
Id. ¶¶ 116-22.
11
Id. ¶¶ 98-108.
12
Defendants’ Second Motion to Dismiss (“Defs.’ Second Mot. to Dismiss”). D.I. No. 23.
13
Sofregen Medical Inc. v. Allergan Sales, LLC, 2021 WL 1400071 (Del Super. Apr. 1, 2021). D.I. No. 38.
14
Order entered on Sept. 6, 2022. D.I. No. 145.
15
Defendants’ Motion for Summary Judgment (“Defs.’ Mot. for Summ. J.”). D.I. No. 146.
16
Sofregen Medical Inc. v. Allergan Sales, LLC, 2023 WL 2034584 (Del. Super. Feb. 3, 2023).
2
The expert witnesses for Sofregen were Peter D. Wrobel and Dr. Jedediah Kaufman.
Allergan’s expert witnesses were Dr. Karen M. Decker and William G. Krieger.
All the witnesses testified on direct and were available for cross-examination. Normally,
the Court would list the witnesses in the order they testified, and which party called the witness;
however, because the Trial was a bench trial, the Court took witnesses out of order and used
Rule 611 of the Delaware Rules of Evidence to allow for examination of the witness for both
parties cases-in-chief.
B. CREDIBILITY OF WITNESSES
Here, the Court is the sole judge of each witness’s credibility, including the parties.17
The Court considers each witness’s means of knowledge; strength of memory; opportunity to
observe; how reasonable or unreasonable the testimony is; whether it is consistent or
inconsistent; whether it has been contradicted; the witnesses’ biases, prejudices, or interests; the
witnesses’ manner or demeanor on the witness stand; and all circumstances that, according to the
evidence, could affect the credibility of the testimony.18
The Court finds that—based on their testimony at the Trial and the factors listed above—the
witnesses that testified were generally credible. All witnesses had some form of relationship to
the parties and the Court accounted for that bias. The Court, however, believes that the
witnesses were not evasive, nor did they provide testimony that was not somehow supported by
other evidence. While the Court finds that the witnesses were generally credible, the Court gave
more weight to some testimony based on evidence supporting that testimony. As discussed
below, some witnesses’ testimony was less helpful based on lack of memory or alike—e.g.,
17
See Superior Court Civil Pattern Jury Instruction 23.9.
18
Id.3
testimony regarding a July 8, 2016, due diligence meeting at Allergan. The Court cannot give as
much credibility to such testimony.
C. Exhibits
The parties submitted an extensive number of exhibits on June 9, 2023. Most of these
exhibits were admitted without objection. The parties provided the Court with the exhibits in the
form of joint exhibits (“JX”) and range from JX1 to JX507.19
IV. FACTUAL FINDINGS
A. THE PARTIES
Plaintiff Sofregen Medical Inc. is incorporated in Delaware and has its principal place of
business in Medford, Massachusetts.20 Sofregen Medical Inc. is “an early stage commercial
biotechnology company focused on developing natural biomaterial medical products for medical
aesthetics and reconstructive surgery.”21 At the time of filing this action, Sofregen Medical Inc.
raised a total of around $22.3 million in funding.22 Plaintiff Sofregen Medical Ireland Limited
was “an Irish private limited company” when the APA closed in November 2016.23
Defendant Allergan Sales, LLC is a Delaware limited liability company with revenues
exceeding $16 billion in 2019.24 Defendant Allergan Pharmaceuticals Holdings (Ireland) is an
“Irish incorporated private unlimited liability company.”25
19
One reason for the delay in issuing this decision related to the Court’s difficulty in reconciling the Court’s record
of exhibits with those used by the parties in briefing.
20
Second Am. Compl. ¶ 10.
21
Id.22
Id.23
Id. ¶ 11.
24
Id. ¶ 12.
25
Id. ¶ 13.
4
B. SERI
SeriScaffold and SeriPliable (collectively, “SERI”) are surgical meshes for soft-tissue
support.26 SERI is composed of purified silk that has been knit into a weave.27 Allergan
acquired SERI for $70 million in 2010.28 The FDA approved SERI for use “as a transitory
scaffold for soft-tissue support and repair to reinforce deficiencies where weakness or voids exist
that require the addition of material to obtain the desired outcome.”29 Allergan interpreted the
FDA’s approval to include any type of soft-tissue support, such as in the abdomen for a tummy
tuck or in the breast for reconstruction.30
Allergan employed approximately 100 salespeople to market and sell SERI to doctors,
surgeons, and hospitals.31 Allergan’s salespeople brought samples of SERI while meeting with
potential customers (“Trunk Stock”).32 The evidence at Trial demonstrated that Allergan did not
carefully track the Trunk Stock carried by its salespeople.33
The FDA requires medical-device companies to track complaints about their devices.34
Allergan tracked SERI-related complaints using software called TrackWise, which generates a
computerized spreadsheet listing each complaint (the “SERI Complaint Report”).35 The SERI
Complaint Report consists of data compiled into a list of every complaint relating to SERI on a
worldwide basis.36 Each SERI procedure is assigned a case number.37 The SERI Complaint
26
June 5, 2023 Tr. 12:14-13:1.
27
June 5, 2023 Tr. 12:14-13:1.
28
JX 4 at 4.
29
JX 34 at 1; JX 4 at 4.
30
JX 403 at 7 (24:17-21).
31
June 8, 2023 PM-Tr. 10:4-7.
32
June 8, 2023 PM-Tr. 19:19-3.
33
Id. at 39:14-17; JX 403 at 19 (71:14-24) (“I think the reps had a lot of stock in their car trunk of Seri. We did not
have a good system in place to know exactly how much was still with the reps because … we were not tracking
everything at that time.”)
34
June 5, 2023 AM-Tr. 40:12-15.
35
Id. 40:6-11.
36
June 7, 2023 AM-Tr. 123:13-23, 124:9-13.
37
June 5, 2023 AM-Tr. 40:16-41:6.
5
Report provides a separate entry for each complaint associated with that procedure.38 There
could be multiple entries for different complaints from a single procedure.39 The SERI
Complaint Report can reveal patterns of adverse events or safety signals but the information is
insufficient to determine the cause of any specific adverse event.40
The FDA expects that certain adverse events be reported with the Manufacturer and User
Facility Device Experience (MAUDE) database.41 The MAUDE database homepage provides
that “[c]onfirming whether a device actually caused a specific event can be difficult based solely
on information provided in a given report” and that “[e]stablishing a cause-and-effect
relationship is especially difficult if circumstances surrounding the event have not been verified
or if the device in question has not been directly evaluated.”42
C. SERI CLINICAL TRIALS AND USE
Allergan sponsored a number of Phase 4 clinical studies for SERI, including the SURE
clinical studies after purchasing SERI.43 Allergan had the first clinical trial started in the United
States on October 22, 2010 (the “SURE-001 Study”).44 The SURE-001 Study explored the use
of SERI for tissue support and repair in breast reconstruction.45 According to Dr. Hoang-
Lindsay, a study sponsor must obtain permission from the FDA, known as an investigational
device exemption (“IDE”) before an experimental device may be used with human subjects.46
38
June 5, 2023 AM-Tr. 40:16-41:6.
39
June 5, 2023 AM-Tr. 40:16-41:6.
40
June 5, 2023 AM-Tr. 42:5-8; June 7, 2023 AM-Tr. 124:1-21.
41
June 5, 2023 AM-Tr. 43:19-44:2; see also JX 495.
42
JX 495 at 1.
43
JX 452 at 5 (definition of “Study Phase”); Clinicaltrials.gov defines Phase 4 clinical trials as “[a] phase of research
to describe clinical trials occurring after FDA has approved a drug [or device] for marketing …. These trials gather
additional information about a drug’s [or device’s] safety, efficacy, or optimal use.” https://clinicaltrials.gov/study-
basics/glossary.
44
JX 25 at 1.
45
Id. at 1-2.
46
June 5, 2023 AM-Tr. 35:15-22.
6
Allergan failed to obtain an IDE for the SURE-001 Study, so the FDA required Allergan to
obtain the IDE retroactively in 2013.47
The SURE-001 Clinical Study Report (the “SURE-001 CSR”) results were promising
and indicated that SERI was safe and effective in breast reconstruction.48 The SURE-001 CSR
reflected an explant rate of less than 10% and the reasons for explantation were not attributed to
SERI.49 As explained at Trial, explant rate relates to the need to remove SERI from the body
during a subsequent surgery. Only 5.3% of the adverse events were related to SERI and all were
considered mild.50 The investigators did not find any serious adverse events related to SERI.51
All reported statistics were within an acceptable range for a surgical mesh.52 The SURE-001
CSR reflected a high satisfactory rating for SERI with doctors and patients.53
The SURE-001 Study was completed on April 25, 2014.54 Allergan finalized the SURE-
001 CSR on December 24, 2014, seven months after the study was completed.55 In February
2015, data for the SURE-001 Study was published in Plastic and Reconstructive Surgery, the
journal of the American Society for Plastic Surgeons.56
During Allergan’s ownership of SERI, reports of adverse events associated with SERI in
breast reconstruction increased “drastically.”57 Philippe Schaison, the former head of U.S.
Medical for Allergan, learned from physicians, key opinion leaders (“KOL”),58 and Allergan
47
JX 25 at 1; see also June 5, 2023 AM-Tr. 38:14-23.
48
June 7, 2023 AM-Tr. 122:7-15.
49
JX 25 at 5; JX 429 at 8.
50
June 7, 2023 AM-Tr. 120:19-121:3.
51
June 7, 2023 AM-Tr. 122:1-6.
52
June 7, 2023 AM-Tr. 118:20-121:15.
53
JX 25 at 4-5.
54
Id. at 2, 71.
55
Id. at 2, 71.
56
JX 429 at 6.
57
June 5, 2023 Tr. 268:23-269:15.
58
Key Opinion Leaders are clinicians that are early adopters and users of SERI that share their experience with their
colleagues. See June 5, 2023 Tr. 270:5-7.
7
salespeople of increasing rates of adverse events and side effects, including seroma and removal
of SERI.59
Allergan commenced a second study of SERI—the “SURE-002 Study”—in Europe on
June 21, 2011, to examine the use of SERI for tissue support and repair in direct-to-implant
breast reconstruction.60 Dr. Carolin Nestle-Kräming and Dr. R. Douglas MacMillan were the
principal investigators for the SURE-002 Study. The results reflected in drafts of the SURE-002
Clinical Study Report (“SURE-002 CSR”) differed from the SURE-001 Study.61 Allergan’s
then-Vice President of Regulatory Affairs, Constance Garrison, noted that “it was determined
that a deep dive was required into the data to understand why the results from SURE-002 are so
different from SURE-001 ….”62
Addressing the differences in results, Allergan proposed drafting a white paper (the
“White Paper”) that would accompany the final SURE-002 CSR.63 In 2014, Allergan’s Vice
President of Global Regulatory Affairs, Bruce Krattenmaker, commissioned an assessment of the
SURE-002 Study to be completed by October 2014.64 During the drafting process, Allergan
addressed ways to explain the rates of adverse events reflected in the SURE-002 Study data.65
Mr. Krattenmaker commented on a later draft of the White Paper that “[i]t reads very poorly to
me and I think their rationale for justifying [adverse event] rates wouldn’t hold much support
externally or by a regulatory agency ….”66
59
Id. 268:22-269:8.
60
JX 469 at 2.
61
JX 37.
62
Id. at 37.
63
JX 45 at 1; JX 46 at 1.
64
JX 471.
65
JX 46 at 1.
66
JX 55 at 1.
8
On May 27, 2015, an email circulated within Allergan with the subject line “Douglas
Macmillan – URGENT.”67 Dr. MacMillan (one of the SURE-002 Study investigators) advised
Allergan that “he and some colleagues will shortly be publishing some data [sic] on SERI which
he said is not favorable.”68 Dr. MacMillan explained that a manuscript about to published
identified that 18% of patients “developed a significant ‘inflammatory reaction’ to Seri” that
appears approximately six weeks post-surgery.69 At Trial, this inflammatory reaction was
defined as Red Breast Syndrome. Dr. MacMillan promised to share a copy of the final
manuscript with Allergan.70 This email chain was eventually forwarded to Dr. William Daunch,
Ph.D., an Allergan consultant, and Dr. Joseph Purpura, Allergan’s Senior Medical Director, Head
of Device Safety.71
In September 2015, Dr. Mark Jewell advised Allergan of a link between SERI and Red
Breast Syndrome.72 Dr. Jewell, a paid Allergan consultant, contacted Allergan’s then-Vice
President of Sales and Marketing, Carrie Strom, to a presentation given by Dr. MacMillan
regarding the SURE-002 Study and post-operative Red Breast Syndrome.73 Dr. Jewell informed
Ms. Strom that “[w]e will need to be vigilant about this, as I think that [Dr.] MacMillan and the
Sure-002 group may try to publish something on their own about this issue.”74
As such, Allergan was on notice of the data collected in drafts of the SURE-002 CSR
drafts. Allergan had a “final” SURE-002 CSR by June 2015 (a year and a half before the APA).75
In December 2015 (a year before the APA), Mr. Smith, Allergan’s director of regulatory affairs,
67
JX 35.
68
Id. at 4.
69
Id. at 1.
70
Id.
71
Id. Dr. Daunch and Dr. Purpura were identified by Allergan as individuals with knowledge in the APA. JX 147 at 1.
72
JX 40 at 1.
73
Id.
74
Id.
75
JX 36.
9
represented that the SURE-002 CSR “is being completed now and will probably be final in
January ’16.”76 Results from the SURE-002 Study were due to the FDA by December 2015 but
Allergan requested an extension until August 2016.77
Mr. Smith and Mr. Krattenmaker paused work on both the SURE-002 CSR and White
Paper so Allergan could “wait and see the results of business development,” i.e., the sale of SERI
to Sofregen.78 In March 2016, Mr. Smith instructed Allergan employees to continue to “hold for
a little while more …” on completion of the SURE-002 CSR.79
The SURE-002 Study concluded on February 5, 2015. Allergan did not sign SURE-002
CSR until December 7, 2016—a time just after the sale of SERI to Sofregen.80 On August 10,
2016, an Allergan employee sent an internal email indicating that the SURE-002 CSR was “e-
signed and ready for publishing.”81 The SURE-002 CSR subsequently was revised and the
SURE-002 CSR “version 2.0” was finally signed by Allergan on December 7, 201682 The signed
SURE-002 CSR concluded that “[t]he use of SERI in this study provided an adequate and
acceptable safety profile, a favorable risk-benefit ratio ... and high levels of breast satisfaction by
surgeons and subjects.”83
Ms. Garrison inquired why the draft SURE-002 CSR “has a seroma rate of 30%, tissue
necrosis of 21%, and explant rate of 25% with a conclusion that the device is safe and effective.
(!).”84 Mr. Krattenmaker did not think that “the results in SURE 002 should be viewed positively
and that they support safe and effective use in the patient population enrolled (and procedures
76
JX 135 at 2.
77
JX 474 (“results were due Dec 2015 and we are requesting a new due date of August 2016”).
78
JX 472 at 2; June 7, 2023 AM-Tr. (Green) 79:2-9.
79
JX 473 at 1.
80
JX 157 at 1, 69.
81
JX 124.
82
JX 156.
83
JX 157 at 68.
84
JX 36.
10
used) in SURE 002.”85 Mr. Krattenmaker believed that the “FDA isn’t going to buy any of it.”86
Mr. Krattenmaker acknowledged:
We have been concerned about regulatory implications, but in the end, this isn’t
Regulatory Affairs responsibility to release a CSR or assure that it is defendable. If
it comes back to haunt whoever owns Seri going forward, then they can seek out
our CMO or Safety people to defend it.87
The SURE-002 CSR signed by Allergan reported surgeon satisfaction as an 8 of 10 and subject
satisfaction as a 4.4 of 5.88
The SURE-006 clinical study began on July 1, 2013, exploring the use of SERI for soft-
tissue support and repair in breast reconstruction with and without radiation (the “SURE-006
Study” and together with the SURE-002 Study, the “SURE Studies”).89 Dr. Scheflan was the
principal investigator on the SURE-006 Study.90 The SURE-006 Study was designed to analyze
eighty patients but only fifteen patients were enrolled.91 Allergan halted the SURE-006 Study
early.92 Five of the fifteen of them had SERI explanted.93
As with the SURE-002 CSR, the final SURE-006 clinical study report (the “SURE-006
CSR” and together with the SURE-002 CSR, the “SURE CSRs”) provided that the investigator
satisfaction with SERI was “a mean of 9.2 out of 10.”94 The SURE-006 CSR further provided
that “Allergan halted enrollment in this study because it was determined that the enrollment
criteria needed to be more restrictive.”95 An internal Allergan email provided that the SURE-006
85
JX 45.
86
Id.
87
JX 475 at 1 (emphasis added).
88
JX 469 at 4, 61.
89
JX 128 at 1-2.
90
Id. at 2.
91
Id.
92
JX 370 at 1-2.
93
Id. at 5.
94
JX 128 at 5.
95
Id. at 2.
11
Study was “stopped due to high SAE rates.”96 Testimony at Trial demonstrated that the inclusion
and exclusion criteria for the SURE-006 Study were consistent with the SURE-001 Study and
SURE-002 Study.97 The testimony also indicated that the SURE-006 Study likely was stopped
because of high rates of adverse events and not because of the patient enrollment criteria.98
The SURE-006 CSR was signed on September 19, 2016, approximately six months after
the study ended and two months before the APA was signed.99
On June 5, 2016, Drs. MacMillan, Nestle-Krämling, Scheflan, and two other physicians,
submitted a manuscript for publication to the Journal of Plastic, Reconstructive & Aesthetic
Surgery (the “Rolph Paper”).100 The Rolph Paper is a study that summarizes the authors’ clinical
experience with SERI.101 The Rolph Paper addressed a complication with SERI described as “a
delayed hypersensitivity reactions,” or “Red Breast Syndrome.”102 Red Breast Syndrome
apparently causes the patient to have an immune response that attacks the mesh.103
The authors of the Rolph Paper submitted the paper publication while Allergan still
owned SERI and approximately five months before the APA was signed.104 The authors
disclosed the consultancy fees and payment received from Allergan for conducting clinical
trials.105
96
JX 370 at 1-2.
97
June 7, 2023 AM-Tr. 134:10-135:10.
98
Id.
99
JX 128 at 47.
100
JX 299 at 6.
101
June 7, 2023 AM-Tr. 139:1-22, 140:4-11.
102
Id. 140:22-141:3, 143:5-147:20.
103
Id.
104
JX 299 at 6.
105
JX 299 at 12.
12
D. ALLERGAN DECIDES TO DIVEST SERI
SERI does not appear to be a commercial success for Allergan.106 The record indicates a
number of reasons for this. On May 29, 2015, the FDA issued a warning letter (the “Warning
Letter”) to Allergan addressing Allergan’s untested use of SERI in breast-surgery applications in
combination with a secondary device, like an implant or expander.107 Although contested at
Trial, surgeons also began having problems with SERI similar to those reflected in the SURE-
002 CSR and the Rolph Paper, including seroma and poor tissue integration, requiring
explantation of SERI.108 Surgeons became reluctant to use SERI and Allergan salespeople
stopped promoting SERI as the rates of adverse events increased.109 Mr. Schaison testified that
Allergan noticed a correlation between the decline of SERI’s reputation among surgeons and
lower sales of SERI.110
Allergan decided in mid-2015 to stop promoting SERI.111 Allergan did this for a number
of reasons. The Warning Letter instructed Allergan that using SERI in “breast reduction
applications” would require additional FDA clearance.112 Substantially all of Allergan’s sales of
SERI stemmed from breast surgery applications.113 Moreover, as already discussed, there were
increasing incidents of adverse events. These combined reasons led Allergan to divest SERI.114
In November 2015, Sofregen, through its CEO Howard Weisman, expressed interest in
acquiring SERI to Mr. Schaison.115 Sofregen was developing its own silk-derived material that
106
June 5, 2023 Tr. 264:5-7.
107
JX 34; June 5, 2023 AM-Tr. 57:4-12.
108
June 5, 2023 Tr. 268:16-269:13.
109
Id. 264:8-265:12.
110
Id. 271:12-272:4.
111
JX444.
112
JX34.
113
June 8, 2023 PM-Tr. 10:22-11:14.
114
Id. 272:5-15.
115
PTO ¶ 29.
13
originated from the same lab and shared similar technology as SERI.116 When Sofregen
contacted Allergan about acquiring SERI, Sofregen knew that Allergan had been promoting
SERI with its breast implant and tissue expander business.117 Sofregen also knew about the
Warning Letter.118 Because SERI was otherwise performing well in the market, Sofregen saw
the Warning Letter as an opportunity.119 Sofregen would use SERI as its only commercial
product and leverage its understanding of silk technology to show surgeons the value of SERI.120
Moreover, Sofregen believed it would have an easier time navigating promotional issues with the
FDA because it was a smaller company.121 Allergan had apparently had confidence in Sofregen’s
ability to manage SERI despite Sofregen’s smaller size and sales force.122
Allergan’s Executive Director of Development, Kevin Green, oversaw due diligence for
Allergan.123 On December 18, 2015, Mr. Green emailed individuals with the most knowledge of
SERI, including Dr. Daunch, Mr. Krattenmaker, Ms. Strom, Mr. Smith, and Dr. Purpura, to
gather diligence materials to share in a data room on Box.com.124 Mr. Green instructed them to
“[t]hink about the types of things you would want to see if you were conducting diligence on this
asset.”125 Allergan entitled the shared folder in Box.com as “Sofregen—Project Silver Oak—
Allergan R&D.”126
116
June 6, 2023 AM-Tr. 83:11-19.
117
Id. 84:10-23.
118
Id.
119
Id. 86:13-87:1-10.
120
Id. 87:16-88:1-2.
121
Id. 87:11-15; June 8, 2023 PM-Tr. 58:17-59:1-9.
122
JX 140; June 8, 2023 PM-Tr. 58:9-16.
123
JX 52 at 1; June 5, 2023 Tr. 22:12-16.
124
JX 52 at 1.
125
Id.
126
JX64.
14
Dr. Hoang-Lindsay,127 Sofregen’s then-Chief Science Officer, coordinated due diligence
with a team of five or six Sofregen employees and consultants.128
In February 2016, Dr. Hoang-Lindsay, Sofregen’s co-founder and chairman, Howard
Weisman, and Sofregen’s then-Chief Financial Officer, Milan Kofol, attended an in-person
diligence meeting at Allergan’s offices in Irvine, California.129 Allergan’s attendees included Ms.
Strom, Mr. Smith, and Dr. Daunch.130
At that meeting, Allergan gave a PowerPoint presentation that purported to represent
SERI’s clinical performance and reputation among surgeons.131 One slide, titled “Perceptions of
SERI have significantly improved on several attributes compared to 2014,” provided that
surgeons perceived that there was rapid tissue integration, well-vascularized tissue, and minimal
seroma after SERI was implanted.132 Allergan represented to Sofregen that the perception of
SERI among surgeons had only grown more positive from 2014 to 2015.133 Another slide, titled
“SERI Continues to Make Strides with Plastic Surgeons,” claimed that surgeons perceived SERI
as performing as well as, or better than, biologically sourced surgical meshes.134 Allergan
explained SERI’s “regulatory position” after receiving the Warning Letter.135 The presentation
contained unit forecasts for SERI for periods before and after receipt of the Warning Letter.136
Allergan projected lower financial projections for SERI after the Warning Letter.137
127
Dr. Hoang-Lindsay earned her Ph.D. in interdisciplinary material science from Vanderbilt University and completed
a fellowship at Harvard University Medical School in biomedical engineering within the Center of Engineering for
Medicine. June 5, 2023 Tr. 9:19-10:1-16. The Court did not understand that Dr. Hoang-Lindsay to be experienced
with respect to due diligence in asset acquisition.
128
PTO ¶ 33.
129
JX444.
130
June 5, 2023 Tr. 15:16-21; JX 79 at 1.
131
June 5, 2023 Tr. 15:7-13.
132
JX 79 at 22; June 5, 2023 Tr. 18:4-13.
133
June 5, 2023 Tr. 18:16-19:1.
134
JX 79 at 24; June 5, 2023 Tr. 19:9-20:1-4; June 5, 2023 Tr. 268:22-269:8.
135
JX65
136
JX79.
137
Id.
15
Due diligence began in early 2016 and consisted of regular conference calls, requests for
information, and follow-up questions that continued until shortly before closing.138 Dr. Hoang-
Lindsay took notes during the conference calls summarizing key takeaways and shared her notes
with Sofregen’s management team.139
Shortly after due diligence started, Allergan added a folder to the data room titled “SERI
Phase IV,” devoted to the SERI-related Phase 4 clinical trial data (i.e. the SURE studies).140
Allergan provided the SURE-001 Study data in the “SERI Phase IV” folder, and that data had
also been published and was available on ClinicalTrials.gov.141 Allergan and Sofregen conferred
regarding the SURE-001 Study data extensively during due diligence and Sofregen was
impressed with the results.142 The low rates of seroma, skin necrosis, and explant were
consistent with other FDA-approved surgical meshes and indicative that SERI carried a low
liability risk.143 Mr. Smith and Dr. Hoang-Lindsay discussed using the SURE-001 Study clinical
data to support Sofregen’s future application to the FDA to obtain clearance for the use of SERI
in breast reconstruction.144
Afterwards, Dr. Hoang-Lindsay and Mr. Smith talked regarding the retroactive IDE that
Allergan obtained for the SURE-001 Study.145 Mr. Smith, followed up with Dr. Hoang-Lindsay
to further clarify SERI’s “complex [regulatory] situation.”146 Mr. Smith explained that the “FDA
continues to be concerned over [SERI’s use] in conjunction with a breast implant or tissue
expander” based on the “new questions of safety and effectiveness” associated with SERI’s use
138
PTO ¶ 31; June 5, 2023 AM-Tr. 20:16-21:11.
139
June 5, 2023 AM-Tr. 21:6-11.
140
JX 64; June 5, 2023 Tr. 245:17-246:1-2.
141
June 5, 2023 Tr. (Hoang-Lindsay) 245:13-246:22; JX 401 at 3.
142
June 5, 2023 Tr. (Hoang-Lindsay) 32:12-19 and 245:14-246:22.
143
Id. 33:20-34:19.
144
JX 118; June 5, 2023 Tr. 60:2-6.
145
JX 25 at 1; June 5, 2023 Tr. 38:14-17.
146
JX65.
16
“in proximity to expanding tissue.”147 Mr. Smith also noted that “any procedure involving a
breast implant” was “definitely not within [SERI’s] cleared intended use.”148 Mr. Smith opined
that, if Sofregen wanted to market SERI for any non-implant-based breast applications, Sofregen
would need to provide a pre-market “submission for those applications.”149 A consultant
apparently also advised Sofregen that SURE-001 could not be used to “support a future
marketing application for any use of SERI in the breast … [because] it lacked a control group
and effectiveness endpoint.”150
As part of the application process, Dr. Hoang-Lindsay understood that Allergan would
have provided all relevant SERI clinical data to the FDA so the FDA could evaluate the benefits
and risks of SERI.151 Dr. Hoang-Lindsay believed that would have included any clinical SURE
Studies data for the use of SERI in the breast or with an implant.152 Dr. Hoang-Lindsay thought
that any other SERI related clinical data was either consistent with the SURE-001 Study data or
was not otherwise concerning because the FDA approved Allergan’s retroactive IDE
application.153
On July 8, 2016, Dr. Hoang-Lindsay emailed an updated due-diligence list to Mr. Green
titled “AGN-Sofregen Pre-Closing Activity” (the “July 2016 Due Diligence Request”).154 The
July 2016 Due Diligence Request asked for: (i) Allergan’s FDA regulatory files regarding SERI,
(ii) the SERI Complaint Report and medical-device report, and (iii) contact information for SERI
KOLs.155 The July 2016 Due Diligence Request also included a request for “Allergan to provide
147
Id.
148
Id.
149
Id.
150
JX63.
151
June 5, 2023 Tr. 38:1-13.
152
Id.
153
June 5, 2023 Tr. 39:4-17.
154
JX 95; June 5, 2023 Tr. 23:3-8.
155
JX 95 at 2, 4; June 5, 2023 Tr. 23:12-26:1-7.
17
information of any on-going sponsored clinical studies ….”156 Mr. Green testified that the July
2016 Due Diligence Request sought copies of the SURE Studies.157
Allergan provided the FDA communications, the SERI Complaint Report, medical-
device report, and KOL list prior to closing on the APA.158 Allergan does not appear to have
provided the data from the SURE Studies until after the APA.159
On July 27, 2016, Dr. Hoang-Lindsay, Mr. Weisman, and Christopher White (Sofregen’s
future president), traveled to Allergan’s offices for a second in-person due diligence meeting (the
“Second Due Diligence Meeting”).160 Dr. Hoang-Lindsay requested to “review any clinical
data” regarding SERI prior to the Second Due Diligence Meeting.161
The Sofregen team was scheduled to meet with different Allergan representatives
throughout the day; however, testimony regarding the Second Due Diligence Meeting was not
overly helpful as Dr. Hoang-Lindsay, Mr. Smith, and Mr. Weisman do not recall who exactly
attended what meeting.162 For example, Mr. White took notes (“White’s Notes”) but Mr. White
cannot recall any details other than those in his notes.163 White’s Notes indicate that the
Sofregen representatives met with Ms. Strom, Mr. Smith, and Dr. Purpura.164
Apparently, Allergan made a presentation on the SURE-001 Study, SURE-002 Study, and
SURE-006 Study.165 Mr. Smith reviewed three “Seri+ secondary device clinical trials.”166 The
White Notes indicate that Mr. Smith also discussed the status of their accompanying “clinical
156
JX 95 at 4.
157
Id.; June 7, 2023 AM 89:3-17.
158
June 5, 2023 Tr. 24:4-26:7.
159
Id.
160
Id. 27:14-28.
161
JX 96.
162
June 5, 2023 Tr. 28:1-7; June 6, 2023 AM-Tr. 91:14-92:4; June 6, 2023 AM-Tr. 10:17-11:10.
163
JX 109; June 6, 2023 AM-Tr. 11:23-24:4.
164
JX 109 at 1, 4, 6.
165
Id. at 4-5.
166
JX100.
18
study reports [CSRs],”167 Mr. Smith first addressed SURE-001, disclosing: (i) this study
involved “2 stage breast” reconstruction using a “[t]issue expander followed by [an] implant”;
and (ii) the SURE-001 CSR was “available.”168 Mr. Smith also discussed SURE-002 and SURE-
006, two studies which (unlike SURE-001) involved “direct to implant” breast reconstruction.169
Mr. Smith made disclosures about SURE-002 and SURE-006: (i) SURE-002 involved “direct to
implant surgery” in “breast cancer patients” and “[n]o tissue expander was used”; (ii) the SURE-
002 CSR was “not done but really close” and “should be finished in 1 or 2 months”; (iii) SURE-
006 involved “direct to implant” surgery in “[p]atients who had received radiation”; (iv) SURE-
006 was “[h]alted … because enrollment [was] not strict enough”; and (v) the SURE-006 CSR
was not yet finished.170
White’s Notes reflect, and Dr. Hoang-Lindsay recalled attending, a meeting with Dr.
Purpura regarding SERI’s safety profile where Dr. Purpura represented that there had not been
“any events for failures that were unusual or causes of concern” and that “[o]therwise, what was
found is what you’d expect.”171
The Sofregen representatives did not recall learning anything during the Second Due
Diligence Meeting that gave them cause for concern regarding SERI.172
Around the time of the Second Due Diligence Meeting, Mr. Smith provided Dr. Hoang-
Lindsay with the SERI Complaint Report.173 After comparing the number of complaints listed
with the approximate number of SERI units that Allergan had sold, Sofregen concluded that the
167
JX109.
168
Id.
169
Id.
170
Id.
171
Id. at 6; June 5, 2023 Tr. 30:6-16.
172
June 5, 2023 Tr. 30:17-31:1-5; June 6, 2023 AM-Tr. 92:23-93:1-11.
173
JX 107.
19
percentage of SERI-related complaints was in the low single digits.174 During a follow-up call
between Dr. Hoang-Lindsay and Allergan’s Brian Dunstan,175 Allergan represented that its
analysis of this data did not reveal any safety signals or patterns of adverse events related to
SERI.176
On July 31, 2016—just days after the July Meeting—Dr. Hoang-Lindsay prepared and
circulated (internally) a list of transitional services that contemplated obtaining a “complete
report” from Mr. Smith about SURE-001, SURE-002, and SURE-006 post-Closing.177 At Trial,
Dr. Hoang-Lindsay admitted that she was aware of both SURE-002 and SURE-006 months pre-
Closing.178
Dr. Hoang-Lindsay noted that the SERI Complaint Report recorded adverse events in
foreign territories and inquired further.179 Allergan informed Dr. Hoang-Lindsay that Allergan ran
the SURE-006 Study in Israel with Dr. Scheflan and that the study was terminated because “AEs
were unacceptable.”180 Dr. Hoang-Lindsay then followed up with Allergan’s Medical Affairs
Director, Dr. Jason Hammer.181 On August 9, 2016, Dr. Hoang-Lindsay called with Dr. Hammer
to discuss the SURE-006 Study and SERI generally.182 Dr. Hammer explained that the high rates
of adverse events reflected in the SURE-006 Study were the result of Dr. Scheflan refusing to
follow the patient-enrollment criteria and called Dr. Scheflan a “cowboy.”183
174
June 5, 2023 AM-Tr. 41:11-22.
175
JX 147 at 1.
176
June 5, 2023 AM-Tr. 42:5-43:1-5.
177
JX505.1; June 5, 2023 Tr. 171:5-11; June 5, 2023 Tr. 172:9-15.
178
June 5, 2023 Tr. 157:5-16.
179
Id. 44:3-6; JX 477 at 2.
180
JX 477 at 1.
181
Id. at 1; June 5, 2023 Tr. (Hoang-Lindsay) 46:3-22.
182
JX 123.
183
June 5, 2023 Tr. 47:14-48:22.
20
Dr. Hammer stated that SERI was well received by plastic surgeons and that, while
Allergan had envisioned that SERI would be used in two-stage breast reconstruction, surgeons
were finding success in direct-to-implant procedures.184 Dr. Hammer also discussed a study
conducted by Dr. Dan Mills, the president of the American Society of Plastic Surgery, examining
the effect of radiation on SERI that showed positive results.185 This was consistent with what Dr.
Hoang-Lindsay had learned during an earlier due-diligence call that exposure to radiation did not
alter the performance of SERI.186 On August 5, 2016, Dr. Hoang-Lindsay sent a follow-up email
to Dr. Hammer asking, “[i]s there any other study that is outstanding (results not published,
approved by Allergan but not initiated, or in the midst of study)?”187 Dr. Hammer never
responded.188
The record indicates that Sofregen made three requests for all SURE clinical data.189
However, the record also indicates that Allergan never made a representation that additional
studies did not exist or that Allergan had produced all studies in due diligence.
E. SOFREGEN ACQUIRES SERI
On November 10, 2016 (“Closing”), Sofregen and Allergan executed the APA.190
Sofregen acquired all the existing SERI inventory, including the Trunk Stock for an initial
payment of $3 million.191 The parties also executed a “Transition Services Agreement” under
which Allergan would render services to Sofregen post-Closing.192
184
JX 123 at 1; June 5, 2023 Tr. 49:6-19.
185
June 5, 2023 Tr. 48:7-13.
186
JX 94; June 5, 2023 Tr. 21:12-22:11.
187
JX 481.
188
June 5, 2023 Tr. 53:13-16.
189
June 5, 2023 Tr. 53:21-54:1-3.
190
JX 146 (“APA”).
191
Id., §2.2(a)(iv)); JX 147 at 31; June 6, 2023 PM-Tr. (Huff) 97:19-98:8.
192
Id., §1.1; June 5, 2023 Tr. 170:5-9.
21
The APA included assumption of liabilities provisions.193 Under the APA, Sofregen
assumed liabilities for SERI sold by Allergan.194 Sofregen agreed to assume liabilities for SERI
implanted after the execution of the APA even if sold prior to the signing of the APA.195
In the APA, the parties agreed Allergan would provide the “Transferred Ancillary
Documents” to Sofregen post-Closing.196 The APA defines Transferred Ancillary Document to
include “all of [Allergan’s SERI-related] … clinical study reports, product complaints and
adverse events records, … [and] research and development data and records,”197 Sofregen
understood “that there was outstanding data … from the studies that [Sofregen] was aware of
[e.g., SURE-002, SURE-006].”198 Sofregen expected to receive this outstanding data (including
CSRs and clinical trial data) post-Closing.199
The APA sections relevant to the remaining claims in this civil action are set out here.
Section 2.2(a)(iv) of the APA governs the transfer of SERI units. It is titled “Transfer of
Assets” and states:
(a) “Acquired Assets” means all of [Allergan’s] right, title and interest, as of the
Effective Date, in and to [its] respective assets exclusively related to the Business
and/or [SERI] Product, wherever located, including without limitation the
following: . . . (iv) (A) all finished product inventory of [SERI], including the
finished product inventory set forth on Schedule 2.2(a)(iv)(A) (such finished
product inventory, the “Finished Product Inventory”), (B) all silk spools held for
use solely to manufacture [SERI] set forth on Schedule 2.2(a)(iv)(B) (the “Spools”),
and (C) the packaging materials used or held for use exclusively with respect to
[SERI] set forth on Schedule 2.2(a)(iv)(C) (such packaging materials, together with
the Finished Product Inventory and Spools, the “Product Inventory”).200
193
JX146, §2.3(a)(iii), §5.7.
194
JX 126.
195
JX146, at 17.
196
Id., §2.5(b).
197
Id., §1.1.
198
June 5, 2023 Tr. 197:7–15.
199
June 5, 2023 Tr. 198:13–18.
200
JX146, § 2.2(a)(iv).
22
Schedule 2.2(a)(iv)(A) lists 15,767 units of Finished Product Inventory in total.201 Both
parties agree this was the total Finished Product Inventory under the Schedule,202 but they
disagree over the number of unaccounted for units and the price of those missing units.203
Section 2.3(a)(iii) of the APA is titled “Assumption of Liabilities,” and it states:
(a) As of the Effective Date, [Sofregen] shall assume and pay, discharge, perform
or otherwise satisfy the following liabilities and obligations of every kind and
nature, whether known or unknown, express or implied, primary or secondary,
direct or indirect, absolute, accrued, contingent or otherwise and whether due or to
become due, of [Allergan’s] arising out of, relating to or otherwise in respect of the
Acquired Assets and/or Business (the “Assumed Liabilities”): . . . (iii) subject to
any applicable reimbursement obligations of [Allergan] in Section 5.7, (A) all
liabilities and obligations for warranty claims, complaints and product liability, and
the other liabilities assumed by [Sofregen] pursuant to Section 5.7, including all
Actions relating to such liabilities, and (B) all liabilities and obligations for refunds,
adjustments, allowances, repairs, exchanges, recalls and returns or similar claims,
arising out of or relating to [SERI] Product, arising after the Effective Date, whether
relating to any [SERI] Product sold prior to, on or after the Effective Date.204
Section 5.7(a)(ii) of the APA is titled “Product Responsibility,” and it states in pertinent
part:
(a) From and after the Effective Date: . . . (ii) Without limiting the foregoing, (A)
[Sofregen] shall promptly notify [Allergan] of any complaints, requests,
investigations, reports or pending or threatened Actions with respect to any
Previously Sold Product; (B) [Sofregen] shall regularly consult in advance with
[Allergan] on all material actions to be taken relating to such complaints, requests,
investigations, reports or Actions relating to any Previously Sold Product; (C)
[Sofregen] shall in good faith incorporate into its response(s) to any such
complaints, requests, investigations, reports or Actions any input of [Allergan] on
such matters; and (D) [Allergan] shall be entitled to participate, at its cost, in any
Action related thereto. [Sofregen] shall diligently conduct the defense of any such
Action. . . . [Sofregen] shall be financially responsible for all such actions required
to be taken by it under this clause (ii); provided, that if (1) any such complaint,
request or investigation shall result in an Action relating to Previously Sold Product,
(2) [Sofregen] has complied with the foregoing terms of this Section 5.7(a)(ii), and
(3) the final and non-appealable holding in such Action is that [Sofregen] is liable
201
JX146, Ex. 38 at 31 (showing a table of Finished Product Inventory as of November 7, 2016).
202
See id. at 22; Pls.’ Answering Br. at 44.
203
See Defs.’ Mot. for Summ. J. at 22, Ex. 51; Pls.’ Answering Br. at 22, Ex. 65. Sofregen believes that, using
Allergan’s own pricing, the price of the missing units totals approximately $467,000. See Pls.’ Answering Br. at 22,
Ex. 66. Allergan disagrees with the damages calculation. See Defs.’ Reply Br. at 20.
204
JX146, § 2.3(a)(iii).
23
for damages resulting, in whole or in part, from Non-Conforming Product (or such
a determination is made in any appealable holding or settlement, consented to by
[Allergan], such consent not to be unreasonably withheld, conditioned or delayed),
then [Allergan] shall be responsible for its pro rata share . . . of the reasonable out-
of-pocket costs and expenses actually incurred by [Sofregen] in connection with
such Action, including damages required to be paid by [Sofregen] relating thereto,
but solely to the extent that such reasonable out-of-pocket costs and expenses and
other Losses are attributable to the use, sale, manufacture or distribution of Non-
Conforming Product.205
Allergan brought Counterclaim I against Sofregen for breach of the above APA Sections
because Allergan believes Sofregen failed to assume liabilities and obligations in connection to
certain lawsuits discussed below.
Sofregen’s post-acquisition plan was to promote SERI, within FDA guidelines, for soft-
tissue reconstruction in a few, high performing markets.206 Sofregen increased its sales force by
hiring six or seven salespeople experienced with surgical devices.207 Using Allergan’s sales data
by territory, Sofregen designed its sales strategy around the largest SERI customers in the best-
selling territories.208 Sofregen expected that sales of SERI in these territories would remain
consistent post-Closing.209 Because Sofregen acquired a set quantity of SERI and it would be a
few years before Sofregen could manufacture SERI, Sofregen’s plan was to maintain, but not
increase, SERI sales.210 Allergan dismantled its own SERI manufacturing facility post-Closing
which meant that Sofregen constructed its own facility.211
During due diligence, Allergan provided Sofregen with its historical SERI sales data that
Sofregen used for its own financial projections for SERI.212 Dan Huff, Sofregen’s Chief
205
Id., § 5.7(a)(ii).
206
June 6, 2023 AM-Tr. 93:17-94:1-3.
207
Id. 97:8-98:8.
208
Id. 98:14-99:1-7.
209
Id. 99:4-7.
210
Id. 94:4-21.
211
Id. 94:22-95:1-7.
212
June 6, 2023 PM-Tr. 69:3-8.
24
Financial Officer, presented the Sofregen board with updated post-Closing financial projections
during a February 2017 board meeting.213 By 2019, Sofregen projected SERI sales to generate
more than $20 million.214
F. POST-CLOSING RECEIPT OF THE SURE-002 STUDY DATA AND SURE-006 STUDY DATA
On December 12, 2016, Mr. Smith directed Allergan personnel to provide the SURE
CSRs to Sofregen.215 On December 22, 2016, Dr. Hoang-Lindsay received an email from
Allergan indicating that additional documents had been uploaded to the Box.com data room.216
Dr. Hoang-Lindsay testified that she did not immediately review the uploaded information
because she did not expect to receive any new data post-Closing that was materially different
from, or contradicted, what was shared during due diligence.217
After reviewing the data, Dr. Hoang-Lindsay believed that the SURE-002 Study data was
new and felt it was concerning.218 Dr. Hoang-Lindsay testified that the rates of necrosis, seroma,
and explant were double, if not triple, the rates reflected in the SURE-001 CSR.219 Dr. Hoang-
Lindsay stated that this concerned Sofregen because patients that had SERI explanted were more
likely to bring a lawsuit.220 Sofregen had been especially sensitive to explant rates during due
diligence.221
The SURE-002 CSR concluded that SERI was safe and effective and reflected high levels
of surgeon and patient satisfaction.222 Dr. Hoang-Lindsay was confused by this conclusion
213
Id. 62:10-77:10; JX 189 at 25.
214
JX 189 at 25.
215
JX 159 at 3.
216
JX 164.
217
June 5, 2023 AM-Tr. 70:7-71:1-4.
218
Id. 71:5-12.
219
JX 157 at 55, 60; June 5, 2023 Tr. 71:19-72:18.
220
June 5, 2023 Tr. 72:19-73:1-14.
221
Id.
222
JX 157 at 68.
25
because the complication and explantation rates were outside the acceptable range for surgical
meshes.223 In January 2017, Dr. Hoang-Lindsay contacted Robert Carnevale at Allergan asking
to schedule a call with the head of the SURE-002 Study to discuss the data.224 Dr. Hoang-
Lindsay also asked Dr. Daunch for more information, but neither Mr. Carnevale nor Dr. Daunch
could explain why Sofregen had not received the data during due diligence.225 Dr. Hoang-
Lindsay testified that she never received an explanation as to why the SURE-002 Study data was
not shared during due diligence and never received a point of contact for the SURE-002 Study.226
Allergan provided written responses to Sofregen about SURE-002 and SURE-006 in
February 2017.227
Sofregen contends that had it known about the SURE-002 Study data, the SURE-006
Study data, or the Rolph Paper prior to November 10, 2016, it never would have agreed to
purchase SERI or signed the APA.228
G. SERI SALES DECLINE
For the first few months after the acquisition, sales of SERI remained consistent with
historical performance and Sofregen’s projections.229 SERI sales dropped at the end of the first
quarter of 2017 and declined throughout 2017.230 Sales declined even in territories where SERI
previously sold well.231 Mr. Schaison testified that SERI was a commercial failure for
223
June 5, 2023 Tr. 73:19-74:1-12.
224
JX 184.
225
June 5, 2023 Tr. 78:12-79:1.
226
June 5, 2023 Tr.79:2-21.
227
JX209.
228
June 6, 2023 AM-Tr. 116:20-117:15; June 5, 2023 Tr. 82:8-83:23.
229
June 6, 2023 AM-Tr. 99:8-17.
230
Id. 99:8-20.
231
Id. 99:21-100:1.
26
Sofregen.232 Mr. Schaison contends that this failure could not have anticipated because of
Allergan’s purported concealment of the SURE CSRs.233
H. SERI TRUNK STOCK
Allergan did not have a tracking system to know how much inventory was in the
possession of its salespeople.234 Allergan stored its aesthetics inventory, including SERI, with
Kuehne and Nagel (“K&N”), a third-party vendor in Texas.235 K&N kept records by serial
number of the SERI inventory.236
Allergan provided Sofregen with an inventory of the SERI trunk stock (“Trunk Stock”) as
of October 18, 2016, prior to Closing.237 Sofregen realized that units of Trunk Stock were
missing sometime in 2017.238 In January 2018, Sofregen provided Allergan with a reconciliation
of the Trunk Stock inventory received from Allergan prior to closing with an updated inventory
list from K&N.239 This reconciliation demonstrates that 140 units of SERI remained missing.240
The outstanding Trunk Stock concerned Sofregen because it meant there were potentially
140 individuals with implanted SERI and Sofregen had no idea who those patients were or how
to monitor potential adverse events.241 Allergan conceded that 140 units of Trunk Stock could
not be located.242 Mr. Schaison testified at Trial that, after Sofregen’s acquisition of SERI, he
heard directly from salespeople that representatives were offering free samples of SERI to
physicians to encourage the purchase of Allergan breast implants.243
232
June 5, 2023 Tr. 263:20-265:1-12.
233
Id.
234
JX 403 at 19; June 8, 2023 PM-Tr. 39:14-17.
235
June 6, 2023 AM-Tr. 101:14-23.
236
Id. 102:4-9.
237
JX 274; June 6, 2023 AM-Tr. 104:12-105:1-8.
238
June 6, 2023 AM-Tr. 106:10-15.
239
JX 274; June 6, 2023 AM-Tr. 105:1-106:1.
240
Id.
241
June 6, 2023 AM-Tr. 106:2-9.
242
JX 281 at 1.
243
June 5, 2023 Tr. 274:21-275:1-12.
27
Sofregen continued trying to locate the missing Trunk Stock and, after an additional
reconciliation, Sofregen still showed 131 units of Trunk Stock missing.244 Sofregen never located
these 131 units of Trunk Stock.245 At no time did anyone at Allergan represent to anyone at
Sofregen that the APA did not obligate Allergan to provide all the Trunk Stock.246
The Court finds that Sofregen has proved that Allergan is responsible to Sofregen for 131
units of Trunk Stock.
I. POST-CLOSING LAWSUITS
A number of SERI-related lawsuits were filed after Closing. Each case involved a direct-
to-implant procedure that resulted in explantation and, in certain cases, it was noted that SERI
had failed to fully integrate into breast tissue:
• On November 28, 2016, Wendy Knecht filed suit in California. 247 Knecht
underwent a direct-to-implant breast reconstruction on February 24, 2015.248
During follow-up visits, it was noted that Knecht had developed seroma and the
SERI was explanted in two separate surgeries.249
• On April 2, 2018, Dwyn Harben filed suit in Pennsylvania.250 Harben
underwent a direct-to-implant breast reconstruction on January 29, 2015, and
the SERI was explanted on December 28, 2016.251 During the explantation
procedure, the SERI was still visible and palpable (i.e., had not integrated)252
• On July 27, 2018, Gianna Krstic filed suit in Massachusetts against Sofregen
and Allergan.253 Krstic underwent breast augmentation surgery on July 16,
2014, and, after her surgeon determined that the SERI “had not biodegraded as
Allergan had represented it would do,” he removed the SERI.254
• On March 24, 2020, Jennifer Hasso filed suit in California.255 Hasso underwent
244
June 6, 2023 AM-Tr. 107:3-108:8; JX 281 at 1.
245
June 6, 2023 AM-Tr. 107:22-108:8.
246
Id. 109:1-7.
247
JX 169 at 15.
248
Id. at 25, ¶ 56.
249
Id. at 25-26, ¶¶ 59-60, 68.
250
JX 289.
251
Id. at 3, ¶¶ 2, 26, 92.
252
Id. at 26, ¶ 92.
253
JX 323.
254
Id. at 5, ¶¶ 19, 23.
255
JX 374.
28
a direct-to-implant breast reconstruction on February 4, 2014, and experienced
significant complications, including seroma.256 The SERI was explanted in
March 2020.257
V. APPLICABLE LAW
The Court will be applying the following general legal principles:
A. GOVERNING SUBSTANTIVE LAW
Delaware law applies here. The parties have relied on Delaware law and the Court is
unaware of any reason why Delaware law does not apply to the claims asserted by the parties.
B. FRAUDULENT INDUCEMENT
To establish a claim for fraudulent inducement, a party must prove:
(1) a false representation of material fact; (2) the defendant’s knowledge of or belief
as to the falsity of the representation or the defendant’s reckless indifference to the
truth of the representation; (3) the defendant’s intent to induce the plaintiff to act or
refrain from acting; (4) the plaintiff’s action or inaction taken in justifiable reliance
upon the representation; and (5) damage to the plaintiff as a result of such
reliance.258
Element (2) is often referred to as “scienter.”259
Fraud does not merely consist of overt misrepresentations.260 Fraud may also occur when
someone deliberately conceals facts important to a transaction, causing the other party to rely on
the concealment to that party’s detriment.261 A party’s concealment can occur through silence in
the face of a duty to disclose the facts or by some action taken to prevent the other party from
discovering the facts important to the transaction.262
256
Id. at 12, ¶¶ 63, 65.
257
Id. at 13, ¶ 69.
258
Chapter 7 Tr. Constantino Flores v. Strauss Water Ltd., 2016 WL 5243950, at *7 n.34 (Del. Ch. Sept. 22, 2016)
(internal quotation marks omitted) (citing Duffield Assocs., Inc. v. Meridian Architects & Eng’rs, LLC, 2010 WL
2802409, at *4 (Del. Super. July 12, 2010)).
259
See ITW Glob. Invs. Inc. v. Am. Indus. P’rs Cap. Fund IV, L.P., 2017 WL 1040711, at *6 (Del. Super. Mar. 6,
2017).
260
Gaffin v. Teledyne, Inc., 611 A.2d 467, 467 (Del. 1992).
261
Id.262
Id.; see also Superior Court Civil Pattern Jury Instruction 16.3.
29
If a party is aware of the true facts of the transaction, even if the facts were concealed,
then there is no fraud.263
C. BREACH OF CONTRACT
Under Delaware law, to prove a breach of contract claim, a party must show: “(1) a
contractual obligation; (2) a breach of that obligation; and (3) resulting damages.”264 A party
harmed by a breach of contract is entitled to compensation that will place that party in the same
position that the party would have been in if the other party had performed under the contract.265
The standard remedy for breach of contract is based upon the reasonable expectations of
the contracting parties.266 Expectation damages are measured by determining “the amount of
money that would put the promisee in the same position as if the promisor had performed the
contract.”267 “Damages for a breach of contract must be proven with reasonable certainty.
Recovery is not available to the extent that the alleged damages are uncertain, contingent,
conjectural, or speculative.”268
“Delaware adheres to the ‘objective’ theory of contracts, i.e.[,] a contract’s construction
should be that which would be understood by an objective, reasonable third party.”269 “Contract
terms themselves will be controlling when they establish the parties’ common meaning so that a
reasonable person in the position of either party would have no expectations inconsistent with the
contract language.”270
263
See Merrill v. Crothall-American, Inc., 606 A.2d 96, 100 (Del. 1992) (knowledge negates fraud); see also Superior
Court Civil Pattern Jury Instruction 16.4
264
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
265
See E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436, 445-46 (Del. 1996).
266
See Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001).
267
Id.268
Lee-Scott v. Shute, 2017 WL 1201158, at *7 (Del. Com. Pl. Jan. 30, 2017).
269
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal v. Paxson Commc’ns,
2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
270
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
30
D. BURDEN OF PROOF
In a civil case, the burden of proof is by a preponderance of the evidence. Proof by a
preponderance of the evidence means proof that something is more likely than not. This means
that certain evidence, when compared to the evidence opposed to it, has the more convincing
force and makes the Court believe that something is more likely true than not. If the evidence on
any particular point is evenly balanced, the party having the burden of proof has not proved that
point by a preponderance of the evidence, and the Court must find against the party on that
point.271 While in some jurisdictions fraud must be shown by clear and convincing evidence, the
burden of proof in a fraud case in Delaware is by a preponderance of the evidence.272
In deciding whether any fact has been proved by a preponderance of the evidence, the
Court may consider the testimony of all witnesses regardless of who called them, and all exhibits
received into evidence regardless of who produced them.
In this particular case, Sofregen carries the burden of proof on Counts II and III of its
Second Amended Complaint. Allergen carries the burden of proof on the Counterclaims.
E. EVIDENCE EQUALLY BALANCED
If the evidence tends equally to suggest two inconsistent views, neither has been
established. That is, where the evidence shows that one or two things may have caused the
breach/damages—one for which a party was responsible and one for which a party was not—the
Court cannot find for the party carrying the burden of proof if it is just as likely that the
breach/damages was caused by one thing as by the other.273
271
Superior Court Civil Pattern Jury Instruction 4.1.
272
See In re IBP, Inc., Shareholders Litigation, 789 A.2d 14, 15, 54 (Del. Ch. 2001).
273
Superior Court Civil Pattern Jury Instruction 4.2.
31
VI. DISCUSSION274
A. SECOND AMENDED COMPLAINT COUNT I—THE MISSING SERI UNITS
APA Section 2.2(a)(iv) governs the transfer of SERI units. It is titled “Transfer of
Assets” and states:
(a) “Acquired Assets” means all of [Allergan’s] right, title and interest, as of the
Effective Date, in and to [its] respective assets exclusively related to the Business
and/or [SERI] Product, wherever located, including without limitation the
following: . . . (iv) (A) all finished product inventory of [SERI], including the
finished product inventory set forth on Schedule 2.2(a)(iv)(A) (such finished
product inventory, the “Finished Product Inventory”), (B) all silk spools held for
use solely to manufacture [SERI] set forth on Schedule 2.2(a)(iv)(B) (the “Spools”),
and (C) the packaging materials used or held for use exclusively with respect to
[SERI] set forth on Schedule 2.2(a)(iv)(C) (such packaging materials, together with
the Finished Product Inventory and Spools, the “Product Inventory”).275
Allergan had a contractual obligation to turn over the Trunk Stock within 30 days of
closing.276 Schedule 2.2(a)(iv) of the APA identified the SERI Product Inventory that Allergan
was obligated to transfer to Sofregen.277
At Trial, Sofregen carried its burden and proved Allergan breached its contractual
obligation under APA Section 2.2(a)(iv). Allergan failed to accurately account for and turn over
its Trunk Stock. In the spring of 2017, Sofregen realized that a number of Trunk Stock units
remained outstanding.278 Sofregen prepared and provided Allergan with a reconciliation of the
inventory of Trunk Stock it received from Allergan with an updated list of inventory it received
from K&N, noting that 140 units remained unaccounted for.279 After additional reconciliation,
274
To the extent that the Court does not provide a citation of a finding of fact in this Section, the Court incorporates
by reference the findings in Section IV above.
275
JX 146, § 2.2(a)(iv).
276
Id., §§ 2.1, 2.2 and 2.5.
277
Id., at 31.
278
June 6, 2023 AM Tr. 106:10-15.
279
JX 274.
32
131 units of Trunk Stock were still unaccounted for, without explanation.280 Allergan never
recovered the missing Trunk Stock.281
Allergan’s witnesses confirmed Allergan’s breach when Ms. Strom testified that Allergan
did not have a tracking system to determine the location of all SERI product,282 and Mr. Schaison
further testified that he heard from Allergan salespeople and managers that they were offering
free samples of SERI to physicians to encourage the purchase of Allergan breast implants.283
The Court also finds that Sofregen has met its evidentiary burden as to damages.
Sofregen has been damaged by not receiving the SERI inventory as was contractually agreed to
by Allergan and Sofregen. Because Allergan failed to account for and provide Sofregen all of
the Trunk Stock, Sofregen was not able to identify and track the adverse events that patients
experienced, as required by the FDA because Allergan failed to account for and provide all of
the SERI Trunk Stock.284
Sofregen’s inability to meet FDA requirements was a liability concern.285 Further,
Sofregen was unable to market or sell the Trunk Stock that Allergan failed to provide.286 Using
Sofregen’s average sales price of $3,000 per unit287 multiplied by 131 units of Trunk Stock,288
The Court awards Sofregen damages in the amount of $393,000, plus prejudgment interest.
B. SECOND AMENDED COMPLAINT COUNT III—FRAUDULENT INDUCEMENT
To establish fraudulent inducement, Sofregen must prove:
(1) a false representation of material fact; (2) the defendant’s knowledge of or belief
as to the falsity of the representation or the defendant’s reckless indifference to the
280
JX 281 at 1; JX 486.
281
June 6, 2023 PM Tr. 99:22-100:3.
282
June 6, 2023 PM Tr. 39:14-17; see also JX 270 at 1.
283
June 5, 2023 Tr. 274:21-275:12.
284
June 6, 2023 AM Tr. 103:19-104:5.
285
June 6, 2023 AM Tr. 103:19-104:5.
286
June 6, 2023 PM Tr. 97:1-98:1-13.
287
Id. 94:7-8; see also JX 189 at 8.
288
June 6, 2023 PM Tr. 98:9-13; see also JX 282.
33
truth of the representation; (3) the defendant’s intent to induce the plaintiff to act or
refrain from acting; (4) the plaintiff’s action or inaction taken in justifiable reliance
upon the representation; and (5) damage to the plaintiff as a result of such
reliance.289
Element (2) is often referred to as “scienter.”290
Fraud does not merely consist of overt misrepresentations.291 Fraud may also occur when
someone deliberately conceals facts important to a transaction, causing the other party to rely on
the concealment to that party’s detriment.292 A party’s concealment can occur through silence
in the face of a duty to disclose the facts or by some action taken to prevent the other party from
discovering the facts important to the transaction.293
Sofregen must prove these elements by a preponderance of the evidence.294
Allergan argues: (a) it did not conceal material facts; (b) it did not act with scienter; and
(c) Sofregen cannot establish justifiable reliance. Sofregen argues: (a) Allergan intentionally hid
harmful SERI studies and remained silent in the face of a duty to disclose the studies; (b)
Allergan acted with at least reckless indifference; (c) Allergan concealed with the intent to
induce Sofregen into the APA; and (d) Sofregen justifiably relied on Allergan’s due diligence
disclosures.
After hearing all of the evidence and considering the post-trial briefing, the Court finds that
Sofregen failed to carry its burden of proof at Trial. Because Sofregen failed to carry its burden
on the essential elements, the Court will not address the issue of whether Sofregen suffered
damages.
289
Chapter 7 Tr. Constantino Flores, 2016 WL 5243950, at *7 n.34.
290
See ITW Glob. Invs. Inc., 2017 WL 1040711, at *6.
291
Gaffin, 611 A.2d at 467.
292
Id.
293
Id.
294
See In re IBP, Inc., Shareholders Litigation, 789 A.2d at 54.
34
1. Sofregen Cannot Prove that Allergan Knowingly Made False Statement or
Concealed the Truth from Sofregen.
Sofregen cannot demonstrate that Allergan concealed information regarding SERI.
Sofregen did not establish that Allergan failed to disclose the SURE-001 CSR pre-Closing. The
record does demonstrate that Allergan did disclose information about SURE-002 and SURE-006
months pre-Closing, including that SURE-006 was halted due to “unacceptable” adverse events.
Sofregen elected not to request the data from SURE-002 or SURE-006 pre-Closing. In addition,
Sofregen failed to establish justifiable reliance in light of Allergan’s pre-Closing disclosures and
the provisions of the APA.
Sofregen can only prevail on its fraud claim if it demonstrates concealment of material
information.295 Sofregen claims Allergan engaged in concealment by: (i) not disclosing the
SURE-002 and SURE-006 data and CSRs pre-Closing; (ii) selectively disclosing the SURE-001
CSR post-Closing; (iii) repeatedly representing that there were no issues with SERI’s clinical
performance but failing to disclose SURE-002’s and SURE-006’s high rates of serious adverse
events; and (iv) not disclosing the Rolph Paper or the link between SERI and RBS.
Sofregen has not provided evidence that Allergan took steps to conceal the SURE-002
and SURE-006 CSRs or underlying data prior to Closing. The Court notes that: (i) Allergan
disclosed the study design and status of the SURE-002 and SURE-006 studies during the Second
Due Diligence Meeting;296 and (ii) Allergan disclosed SURE-006 was halted because of
“unacceptable” adverse events just days after the Second Due Diligence Meeting.297 The
evidence shows that Sofregen failed to specifically request or, if there was a request, follow up to
obtain the CSRs or data for either SURE-002 or SURE-006 pre-Closing.
295
JX 385 at 10-11.
296
JX 109 at 4–5.
297
JX 120 at 1.
35
Allergan’s post-Closing disclosure of the SURE-002 and SURE-006 CSRs is not
evidence of concealment, because this disclosure was expressly contemplated by the APA.
There, the parties agreed Sofregen would receive “clinical study reports” post-Closing (along
with “adverse events records” and “research and development data”).298
Sofregen contends that Allergan concealed high rates of adverse events in connection
with SURE-002 and SURE-006 while also representing there were no issues with SERI’s clinical
performance. Sofregen points to (i) survey results reported within slides entitled “Perceptions of
SERI” that were presented at the February Meeting;299 (ii) a purported representation regarding a
trend analysis of the Complaints Report;300 and (iii) representations by Dr. Hammer during a call
with Dr. Hoang-Lindsay,301 which Dr. Hoang-Lindsay claims was organized to discuss the
SURE-006 study.302
The “Perceptions of SERI” slides do not constitute representations that there were no
issues with SERI’s clinical performance. Allergan reported the results of a June 2015 survey of
plastic surgeons.303 The survey results do not describe SERI’s efficacy and, instead, convey
information regarding how SERI was perceived by the surveyed plastic surgeons.304 The Court
does not find that the slides would not cause a reasonable person to believe SERI had “rapid
tissue integration, well vascularized tissue, and minimal seroma,” because the majority of
surveyed surgeons did not even perceive SERI as having these characteristics.305
298
JX 146 § 2.5(b); JX 146 § 1.1.
299
JX 79 at 22, 24.
300
June 5, 2023 Tr. 42:5–43:5.
301
June 5, 2023 Tr. 49:6–19.
302
June 5, 2023 Tr. 47:5–9.
303
JX 79 at 22, 24.
304
Id. at 22.
305
Id. at 22 and 24.
36
Sofregen contends that Mr. Dunstan represented that an analysis of the Complaints
Report did not reveal any safety signals or patterns of adverse events related to SERI. The
record does not wholly support that contention.
First, the support for this representation is Dr. Hoang-Lindsay’s trial testimony.306 The
Court was not presented with any additional or corroborating evidence to support the testimony.
Sofregen also did not present any trial or deposition testimony from Mr. Dunstan to support
Sofregen’s burden of proof. Second, the purported statement is not a representation that SERI
has “no issues.” Moreover, Sofregen does not dispute the accuracy of Mr. Dunstan’s
representation regarding the Complaints Report.307 Third, Sofregen possessed “the means of
knowledge” regarding any safety signals or patterns in the Complaints Report because Sofregen
analyzed the report months pre-Closing.308 Sofregen could not have reasonably relied on Mr.
Dunstan’s purported assessment.309 Finally, Sofregen could not have reasonably relied on Mr.
Dunstan’s purported representation because Sofregen elected not to obtain “AE trend reports for
SERI” until post-Closing (instead of independently analyzing the trend reports pre-Closing).310
Sofregen describes Dr. Hoang-Lindsay’s August 5, 2016,311 call with Dr. Hammer as
scheduled in response to Mr. Green’s disclosure regarding “unacceptable” adverse events in
SURE-006.312 Sofregen’s position is based on Dr. Hoang-Lindsay’s trial testimony, and it also
ignores her deposition testimony that she was unaware of SURE-006 pre-Closing.313
306
June 5, 2023 Tr. 42:5-43:5.
307
JX 410 at 114:19–23 (“[The] complaints that [Allergan was] monitoring were pretty consistent and very low single
digits.”).
308
Universal Enter. Grp., L.P. v. Duncan Petroleum Corp., 2013 WL 3353743, at *43 (July 1, 2013); see also JX107;
JX 116; JX 117.
309
Universal, 2013 WL 3353743, at *43.
310
JX158 at 1.
311
Sofregen identifies that call having occurred on August 9. OB at 26; but see JX123 at 1.
312
JX 120.
313
JX 410 at 65:12–18, 121:11–17, 13:10–15.
37
The Court notes that some evidence demonstrates that, as of July 31, 2016 (a time prior to
Mr. Green’s SURE-006 email), Dr. Hoang-Lindsay already had a call scheduled to discuss
“sponsored research studies” with Dr. Hammer.314 About a week before the call, Allergan
identified Dr. Hammer as the appropriate contact for Allergan-sponsored “IITs” (i.e.,
investigator-initiated trials) which would not have included the sponsor initiated SURE-006
study.315 Dr. Hammer was also identified as a point of contact for a specific IIT initiated by Dr.
Mills.316 After the August 5 call, Dr. Hoang-Lindsay confirmed that it had been “recommended
by [Strom]” and was for the purpose of discussing “sponsored research studies.” 317
Dr. Hoang-Lindsay’s email summary of the Dr. Hammer call also does not reflect any
discussion of SURE-006 or the “unacceptable” adverse events Green disclosed.318 The email
summary also does not mention either Israel (the location of SURE-006) or Dr. Scheflan (SURE-
006’s principal investigator), despite identifying other clinicians by name (including Dr.
Mills).319
To the Court, other evidence undermines Sofregen’s claim that Dr. Hammer made
misrepresentations to Dr. Hoang-Lindsay to prevent inquiry into SURE-006. At Trial, the Court
understood that Dr. Hoang-Lindsay knew about SURE-006 and, for some reason, elected not to
inquire about it during a previously scheduled call with Dr. Hammer unrelated to that study.
Even with all this, and without further inquiry, Sofregen proceeded to iron out the details of the
acquisition.
314
JX 505 at 1; see also JX505.1 at C23.
315
JX 113 at 1.
316
JX 109 at 3.
317
JX 478 at 1; see also JX479 at 1 (call was scheduled “some time ago”).
318
JX 123 at 1–2.
319
Id.38
The Court also does not find that Allergan concealed information about the “possible”
publication of the Rolph Paper and any link between SERI and Red Breast Syndrome. For
example, Sofregen, during Trial, did not identify due diligence requests that would have included
the Rolph Paper. Additionally, during due diligence, Allergan disclosed the involvement of Dr.
Scheflan in a the SURE-006 study that was halted due to “unacceptable” adverse events.320 Dr.
Scheflan is a co-author of the Rolph Paper. This disclosure seems inconsistent with Sofregen’s
theory that Allergan actively concealed the possible publication of the Rolph Paper.
As for Red Breast Syndrome, Allergan provided Sofregen with the Complaints Report,
which contains the phrase “red breast” 76 times321 and the phrase “red breast syndrome” 46
times.322 The Complaints Report’s entries also relate to patients treated by Dr. Macmillan—
another co-author of the Rolph Paper.323 Allergan also disclosed in the APA a pending product
liability lawsuit, Goulet v. Allergan, Cause No. DC-16-3808 (Tex. Dist. Ct.).324 The complaint
there included specific allegations regarding red breast issues. These disclosures refute Allergan
actively concealing any connection between SERI and Red Breast Syndrome.
The Court finds that, with this factual record, Sofregen cannot carry its burden on
concealment by Allergan or that Allergan knowing made false statements. The Court, therefore,
finds that Sofregen cannot meet this element of its fraudulent inducement claim.
320
JX 120 at 1.
321
JX 107.1 at AP558–72, AP632–44, AP829–30, AP834–41, AP1052–56, AP1063–64, AP1077, AP1126, AP1128–
29, AP1145–46, AP1174–78, AP1196–97, AP1241, AP1294–95, AP1704–09, AP1735, AP1858–65.
322
JX 107.1 at AP558–72, AP632–44, AP1052–56, AP1128–29, AP1145–46, AP1196–97, AP1294–95, AP1704–08.
323
JX 107.1 at AP558–72, AP632–44.
324
JX 147 at 36.
39
2. Sofregen Cannot Meets its Burden on Justifiable Reliance.
The Court also finds that Sofregen did not carry its evidentiary burden as to justifiable
reliance. As such, Count III fails for the independent reason that Sofregen satisfy the element of
justifiable reliance.
To support justifiable reliance, Sofregen claims it: (i) specifically requested the SURE-
002 and SURE-006 data “multiple times” pre-Closing so it reasonably believed Allergan had
shared all of the clinical trial data available; (ii) reasonably believed the SURE-002 and SURE-
006 data was consistent with the positive data from the SURE-001 study showing SERI was safe
and effective; and (iii) reasonably relied on Allergan’s purported representations regarding
SERI’s positive clinical performance.
However, Sofregen expressly disclaims any such reliance in the APA. Accordingly, the
Court cannot agree with Sofregen’s arguments regarding reliance on extra-contractual
representations and the incompleteness of information regarding SERI disclosed pre-Closing
based on the APA.
Sofregen’s reliance arguments are also unsupported by the evidence, which demonstrates
that Sofregen knew, prior to Closing, that data from SURE-002 and SURE-006 was available
(including data regarding “unacceptable” adverse events). However, Sofregen elected not to
specifically request the data or CSRs for either study prior to Closing. Given these (and other)
undisputed facts, Sofregen cannot establish justifiable reliance.
The Court has held APA “Sections 4.5(b) and 6.7 do not disclaim fraud by
concealment;”325 however, this Court has not yet examined how the APA’s provisions impact the
“fact-intensive inquiry” into whether Sofregen can establish justifiable reliance. Sofregen’s
325
JX 385 at 11.
40
claimed justifiable reliance cannot be squared with the promises and representations it expressly
made in the APA.
First, Sofregen’s argument that it reasonably believed Allergan provided complete
responses to Sofregen’s pre-Closing information requests cannot be reconciled with Sofregen’s
unambiguous disclaimer that Allergan had not made “any representation … as to the accuracy
and completeness of any information” provided during due diligence.326 Second, Sofregen
expressly agreed that (except as expressly set forth in Article III of the APA) Allergan made no
“representation or warranty of any kind … relating to the … design, performance, value,
merchantability or fitness for any particular purpose of” SERI.327 This unambiguous provision—
together with APA Sections 4.5(b) and 6.7—directly refutes Sofregen’s argument that it
reasonably relied on Allergan’s purported extra-contractual representations about SERI’s
performance.328 Third, Sofregen’s purported reliance on extra-contractual representations is
undermined by the exclusive-remedies provision in APA Section 2.4(h) of the APA which
provides the remedies in APA Section 2.4 are exclusive for any claim related to the APA except
for one “based upon fraud … with respect to a representation contained in this Agreement.”329
APA Section 2.4(h) requires Sofregen to premise its claimed reliance on an express
representation in the agreement. 330 Fourth, the APA expressly contemplated Sofregen would
receive “clinical study reports” post-Closing (along with all “research and development data”).331
326
JX 146 § 4.5(b); see RAA Mgmt., LLC v. Savage Sports Hldgs., Inc., 45 A.3d 107, 116 (Del. 2012).
327
JX 146 § 3.10.
328
Great Lakes Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 556 (Del. Ch. 2001); see also Infomedia Grp., Inc.
v. Orange Health Sols., Inc., 2020 WL 4384087, at *22 (July 31, 2020) (“The language in the [APA] unambiguously
defines the universe of information on which [Sofregen] relied in deciding to purchase [SERI].”).
329
JX 146 § 2.4(h).
330
Novipax Hldgs. LLC v. Sealed Air Corp., 2017 WL 5713307, at *31–32 (Nov. 28, 2017) (finding that anti-reliance
and exclusive-remedies provisions, read together, “preserved a fraud claim [but limited that fraud claim] to written
representations in the APA”).
331
JX 146 § 1.1; see id. § 2.5(b).
41
The Court finds that this express agreement regarding the post-Closing disclosure forecloses
Sofregen’s belief that Allergan “had shared all [available] clinical trial data” prior to Closing.
The Court notes that Sofregen’s claims of reliance must include recognition that
Sofregen’s due-diligence team was sophisticated and professional.332 “[J]ustifiable reliance has a
personalized character. It is measured by reference to the plaintiff’s capabilities and knowledge;
[and] a plaintiff’s sophistication may affect a court’s judgments about what dangers were fairly
considered obvious.”333
The Court finds that the evidence demonstrates Sofregen knew (pre-Closing) it had not
received all available clinical trial data prior to Closing and could not reasonably have concluded
that the SURE-002 and SURE-006 data—which Sofregen consciously elected not to request—
were consistent with SURE-001. Sofregen’s failure to specifically request the SURE-002 and
SURE-006 data is fatal to its ability to establish justifiable reliance.
During the Second Due Diligence Meeting, Allergan made several key disclosures that
alerted Sofregen to the two studies—and the necessary existence of their underlying clinical data.
At that point in time, Sofregen knew that: (i) both SURE-002 and SURE-006 (unlike SURE-001)
investigated SERI’s use in one-stage, direct-to-implant breast reconstruction; (ii) the SURE-002
study was complete and the SURE-006 study had been halted; and (iii) Allergan already had a
near-final draft of the SURE-002 CSR, which Allergan planned to finalize within “1 or 2
months.”334 Based on these disclosures, Sofregen knew (or, at the very least, was on inquiry
notice), prior to Closing, that Allergan had not provided the SURE-002 and SURE-006 data.335
332
Dr. Hoang-Lindsay, aided by a team of experts led Sofregen’s technical diligence in connection with the potential
acquisition. June 5, 2023, Tr. 13:23–14:6, 107:15–108:5; JX410 at 75:23–76:6. Also, Mr. Weisman, Mr. White, and
Mr. Kofol were sophisticated individuals who had prior experience with complex transactions. JX408 at 95:13–16,
96:4–25.
333
Arwood v. Arwood, 2022 Del. Ch. LEXIS 57, at *41 (Mar. 9, 2022) (citation omitted).
334
JX 109 at 5.
335
JX 410 at 119:14–18; Vichi v. Koninklijke Philips Elecs, N.V., 85 A.3d 725, 796 (Del. Ch. 2014).
42
Dr. Hoang-Lindsay testified, based on previous disclosures, that SURE-002 data was available as
of the July Meeting.336 The Court is unaware of any evidence indicating Allergan told Sofregen
any data or CSR (draft or otherwise) for SURE-002 or SURE-006 was unavailable.
After the Second Due Diligence Meeting, Dr. Hoang-Lindsay and the rest of Sofregen’s
management team (i.e., Mr. Weisman, Mr. White, and Mr. Kofol) knew Allergan was in
possession of negative clinical trial data for “unacceptable” adverse events.337 At the time, Dr.
Hoang-Lindsay knew Sofregen had not received a “complete report” from Mr. Smith about
SURE-002 or SURE-006.338 Dr. Hoang-Lindsay testified that she was not “too concerned”
about adverse events in SURE-006 “[b]ecause the numbers were statistically not meaningful.” 339
Despite its knowledge, Sofregen elected not to request the SURE-002 and SURE-006 data after
the Second Due Diligence Meeting and prior to Closing. 340
On these facts, the Court cannot find that Sofregen has satisfied the element of justifiable
reliance.341 Sofregen knew or should have known that Allergan had the SURE-002 and SURE-
006 data in its possession no later than the Second Due Diligence Meeting during their in-person
meeting. Sofregen consciously proceeded to Closing without reviewing the clinical data (or the
CSRs) for SURE-002 and SURE-006. Sofregen now claims it relied on extra-contractual
representations despite agreeing in the APA that it had not done so. However, the Court finds
that Sofregen appears an neglectful buyer that fails to ask for or otherwise follow-up on available
records that would have been useful.
336
JX 410 at 119:14–18.
337
JX 120 at 1.
338
June 5, 2023 Tr. 172:6-15; JX505.1 at C31.
339
Day 1 at 49:3–5; see also id. at 48:1–3.
340
JX 410 at 121:21–122:6; June 5, 2023 Tr. 172:6-15, 178:13–20, 181:21–182:1, 184:19–185:1. Dr. Hoang-Lindsay
also testified at Trial that she made a conscious decision not to request the SURE-006 data. June 5, 2023 Tr. 48:23–
49:5.
341
See, e.g., Homan v. Turoczy, 2005 Del. Ch. LEXIS 121, at *60–61 (Aug. 12, 2005).
43
C. COUNTERCLAIM I—DECLARATORY JUDGMENT
Allergan is seeking a declaration, pursuant to APA Section 2.3 and 5.7, that Sofregen
assumed all liabilities and obligations relating to Previously Sold Products under APA Section
2.3(a)(iii).342 Moreover, Allergan seeks a declaration that Allergan is not responsible for
reimbursing Sofregen for any damages or costs associated with warranty claims and product
liability unless and until there is a final and non-appealable holding that Sofregen was liable for
damages resulting, in whole or in part, from a Non-Conforming Product and, even then, only if
Sofregen has satisfied the conditions precedent in APA Section 5.7(ii).343
Delaware’s Declaratory Judgment Act344 “provides a means for securing judicial relief in
an expeditious and comprehensive manner.”345 The Act permits the Court to construe a contract
and provide to a party a declaration of rights thereunder.346 To consider a controversy suitable
for declaratory judgment: “1) the controversy must involve a claim of right or other legal interest
of the party seeking declaratory relief; 2) the [claim] must be asserted against” a party with “an
interest in contesting the claim; 3) the conflicting interests must be real and adverse; and 4) the
issue must be ripe for judicial determination.”347
The parties previously agreed that Counterclaim I was justiciable. The parties disagreed
as to the meaning of APA Section 2.3(a)(ii) and 5.7(a)(ii). The Court has already ruled on the
language of APA Section 2.3(a)(ii) but will set out the reasoning again in this Decision after
Trial. 348
342
Defs.’ Countercls. ¶ 108.
343
Id.344
10 Del. C. § 6502.
345
Weiner v. Selective Way Ins. Co., 793 A.2d 434, 439 (Del. Super. 2002). “The Act is entitled to liberal
application.” Id. (citing Stabler v. Ramsay, 89 A.2d 544 (Del. 1952)).
346
See 10 Del. C. § 6502.
347
Weiner, 793 A.2d at 439 (citing Rollins Int’l Inc. v. Int’l Hydronics Corp., 303 A.2d 660, 662 (Del. 1973)).
348
Sofregen Medical Inc., 2023 WL 2034584, at *15-18.
44
Sofregen argues that the plain language of the APA shows that Sofregen “did not assume
any liability for SERI implanted prior to the execution of the APA, only SERI sold prior to the
APA that is implanted after.” Sofregen contends that is the correct interpretation because APA
Section 2.3(a)(iii) contains the language, “arising after the Effective Date.”
APA Section 2.3(a)(iii), titled “Assumption of Liabilities” states:
(a) As of the Effective Date, [Sofregen] shall assume and pay, discharge, perform
or otherwise satisfy the following liabilities and obligations of every kind and
nature, whether known or unknown, express or implied, primary or secondary,
direct or indirect, absolute, accrued, contingent or otherwise and whether due or to
become due, of [Allergan’s] arising out of, relating to or otherwise in respect of the
Acquired Assets and/or the Business (the “Assumed Liabilities”): . . . (iii) subject
to any applicable reimbursement obligations of [Allergan] in Section 5.7, (A) all
liabilities and obligations for warranty claims, complaints and product liability, and
the other liabilities assumed by [Sofregen] pursuant to Section 5.7, including all
Actions relating to any such liabilities, and (B) all liabilities and obligations for
refunds, adjustments, allowances, repairs, exchanges, recalls and returns or similar
claims, arising out of or relating to the Seri Product, arising after the Effective Date,
whether relating to any Seri Product sold prior to, on or after the Effective Date.349
APA Section 5.7(a)(ii), titled “Product Responsibility” states:
(a) From and after the Effective Date: . . . (ii) Without limiting the foregoing, (A)
[Sofregen] shall promptly notify [Allergan] of any complaints, requests,
investigations, reports or pending or threatened Action with respect to any
Previously Sold Product; (B) [Sofregen] shall regularly consult in advance with
[Allergan] on all material actions to be taken relating to such complaints, requests,
investigations, reports or Actions relating to any Previously Sold Product; (C)
[Sofregen] shall in good faith incorporate into its response(s) to any such
complaints, requests, investigations, reports or Actions any input of [Allergan] on
such matters; and (D) [Allergan] shall be entitled to participate, at its cost, in any
Action related thereto. . . . [Sofregen] shall be financially responsible for all such
actions required to be taken by it under clause (ii); provided, that if (1) any such
complaint, request or investigation shall result in an Action relating to Previously
Sold Product, (2) [Sofregen] has complied with the foregoing terms of this Section
5.7(a)(ii), and (3) the final and non-appealable holding in such Action is that
[Sofregen] is liable for damages resulting, in whole or in part, from Non-
Conforming Product . . . then [Allergan] shall be responsible for its pro rata share
. . . of the reasonable out-of-pocket costs and expenses actually incurred by
[Sofregen] in connection with such Action, including damages required to be paid
by [Sofregen] relating thereto but solely to the extent that such reasonable out-of-
349
JX 146, § 2.3(a)(iii).
45
pocket costs and expenses and other Losses are attributable to the use, sale,
manufacture or distribution of Non-Conforming Product.350
“Previously Sold Product” is defined as “any SeriScaffold sold and distributed in
interstate commerce by [Allergan] or any of its Affiliates prior to the Effective Date.”351 “Non-
Conforming Product” is defined as:
[A]ny SeriScaffold sold and distributed in interstate commerce by [Allergan] or its
Affiliates prior to the Effective Date, the manufacture of which failed to conform
in all material respects to the Laws then applicable to the manufacture of
SeriScaffold, . . . as finally determined (i) [in writing by the parties], (ii) [final
judgment of a court], or (iii) [any of means the parties agree to].352
Allergan argues that “Section 2.3(a)(iii) consists of a sub-part (A) and (B) and the former
does not include the ‘arising after the Effective Date’ language.” APA Section 2.3(a)(iii) is
subject to only one reasonable interpretation, and Allergan’s interpretation is not reasonable.
The only reasonable interpretation of APA Section 2.3(a)(iii) is to read the “arising after the
Effective Date” language as relating to both sub-part (A) and (B). To read sub-part (A) without
this limiting language would render other liability provisions meaningless because it would
operate as a general liability clause. Such a construction is inconsistent with the way Sections
2.3(a)(i)-(ii) are drafted. Further, the plain language of APA Section 5.7(a) states that Sofregen
is financially responsible for Previously Sold Products “[f]rom and after the Effective Date,” not
generally as Allergan argues.353
Therefore, APA Section 2.3(a)(iii) is subject to only one reasonable interpretation, and
that interpretation is inconsistent with Allergan’s interpretation underlying its requested
declaration.
350
Id., § 5.7(a)(ii).
351
Id., § 1.1.
352
Id.
353
See id., § 5.7(a).
46
While the Court already addressed the issue of what APA Section 2.3(a)(iii), and APA
Section 5.7(a)(ii) mean, the Court denied summary judgment.354 The reason the Court denied
summary judgment on Counterclaim I had to do with Count III of the Second Amended
Complaint. The Court has ruled on Count III so the holding on what is the meaning of APA
Section 2.3(a)(iii), and APA Section 5.7(a)(ii) is law of the case. Moreover, as discussed below,
the Court finds that Allergan has failed to prove that Sofregen breached APA Section 5.7.
D. COUNTERCLAIM II—BREACH OF CONTRACT (APA SECTIONS 2.3 AND 5.7).
In Counterclaim II, Allergan contends that Sofregen breached APA Sections 2.3 and 5.7.
In post-Trial briefing, Allergan makes the following legal and factual arguments regarding
Counterclaim II:
Sofregen failed to “diligently conduct the defense” and “regularly consult” with
Allergan regarding Actions relating to Previously Sold Products, including the
Knecht, Hasso, Harben, and Krstic Actions. JX146 § 5.7(a)(ii). Sofregen has not
identified any credible evidence demonstrating it regularly consulted with Allergan
with respect the foregoing post-Closing Actions relating to Previously Sold
Products. Allergan has incurred significant expenses as a result of Sofregen’s
failure to comply with Section 5.7. Day 3 (Morning) at 61:12–62:22.
Allergan relies exclusively on the APA Agreement and brief Trial testimony on June 7,
2023.355 Allergan seemingly places the burden of proof on Sofregen to show that Sofregen
complied with APA Sections 2.3 and 5.7. Allergan misstates the law on this point. Allergan
carries the burden on each and every element as to Counterclaim II. The Court finds that, on this
354
Sofregen Medical Inc., 2023 WL 2034584, at *18.
355
June 7, 2023 AM Tr. 61:12–62:22.
47
record, Allergan has failed to meet its burden of proof that Sofregen breached APA Sections 2.3
and 5.7. Accordingly, the Court finds in favor of Sofregen on Counterclaim II.
E. COUNTERCLAIM III—FAILURE TO PAY EARN-OUT PAYMENTS
APA Section 2.8(b) involves “Earn-Out Payments.”356 Section 2.8(b) states that
“[Sofregen] shall pay to [Allergan] earn-out payments equal to five percent (5%) of Net Sales of
[SERI] Products sold directly or indirectly by [Sofregen and related parties] during the Earn-Out
Term (the ‘Earn-Out Payments’) in accordance with Section 2.8(b).”357 The APA defines “Earn-
Out Term” as “the period commencing on the Effective Date and ending on the first to occur of
(i) the 10th anniversary of the Effective Date; and (ii) the expiration of the last-to-expire patent
covering SeriScaffold or SeriPliable.”358
Sofregen failed to provide Earn-Out Reports and pay Earn-Out Payments after Q3 2017.
Allergan alleges that Sofregen’s failure to pay from Q4 2017 to Q4 2018 entitles Allergan to
damages. Sofregen’s failure to pay relates to its belief that Allergan breached the APA.
Sofregen does not dispute that it breached the earn-out obligations under Section 2.8(b) of the
APA.
The Court has already found that Sofregen failed to carry its burden as to Count III. The
APA therefore is enforceable. The Court has found Allergan breached the APA in Count II as to
the return of SERI Trunk Stock. No party has argued that Allergan’s breach would excuse the
performance of Sofregen under APA Section 2.8(b). Accordingly, Allergan is entitled to
judgment in its favor on Counterclaim III in the amount of $102,033, plus pre-judgment interest.
356
See JX 146, § 2.8(b).
357
Id. (underlining in original). Under Section 2.8(b)(ii), Earn-Out Payments for a specific quarter were due within
sixty (60) days after the end of each quarter. See id., § 2.8(b)(ii).
358
Id., § 1.1 (Definitions).
48
VII. CONCLUSION
The Court enters judgment in favor of Sofregen on Count II in the amount of $393,000,
plus prejudgment interest and costs.
The Count enters judgment in favor of Allergan on Count III.
The Court enters judgment on Counterclaim I consistent with its early decision on the
meaning of APA Sections 2.3 and 5.7.
The Court enters judgment in favor of Sofregen on Counterclaim II.
The Court enters judgment in favor of Allergan on Counterclaim III in the amount of
$102,033 plus pre-judgment interest and costs.
IT IS SO ORDERED.
September 26, 2024
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge
cc: File&ServeXpress
49