Preview
FILED
DALLAS COUNTY
1/25/2016
FELICIA9:17:02
PITREP
DISTRICT CLERK
CAUSE NUMBER DC-15-08587
LOW T CENTER, L.L.C. § IN THE DISTRICT COURT
Plaintiff §
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v. §
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BECKMAN COULTER, INC. § 191st JUDICIAL DISTRICT
Defendant/Counterplaintiff §
§
v. §
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LOW T CENTER, L.L.C. AND §
HER KARE HOLDINGS, L.L.C. §
Counterdefendants § DALLAS COUNTY, TEXAS
PLAINTIFF'S SECOND AMENDED PETITION
AND ORIGINAL ANSWER TO COUNTERCLAIM
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW PLAINTIFF and COUNTERDEFENDANTS, and make and file this
Second Amended Petition and Original Answer to Counterclaims and in support thereof,
respectfully shows as follows:
(i) Pursuant to Rule 47 of the Texas Rules of Civil Procedure, this suit seeks
monetary monetary relief within the jurisdictional limits of this Court over $1,000,000.00,
together with all other relief to which Plaintiff may be entitled, and is governed by a Level 3
Discovery Control Plan. Plaintiff has not completed its calculation of economic damages but
will supplement with the maximum amount of actual and exemplary damages it seeks in this suit
at the time of such calculation. At this time, subject to Plaintiff's right to amend under the Texas
Rules of Civil Procedure, Plaintiff states that the maximum damages that it seeks to recover is
$15,000,000.00 in economic damages, plus costs of court and attorneys fees. Plaintiff further
seeks exemplary damages in an amount determined by the trier of fact, but not more than twice
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Plaintiff's Second Amended Petition and Original Answer Page 1 of 28
the economic damages sought by Plaintiff.
(ii) Defendant is requested to disclose that information required to be disclosed
pursuant to Texas Rule of Civil Procedure Rule 194.2 within thirty days of the date of service
hereof, with respect to each Counterdefendant named above.
(iii) The Texas Attorney General is a notice party pursuant to Texas Business and
Commerce Code Sec. 15.21(c). Service on the Texas Attorney General Antitrust Division can be
effected by serving a copy of this pleading at Office of the Attorney General, 300 W. 15th Street
Austin, Texas 78701.
(iv) The Attorney General of the State of California is a notice party pursuant to
Calfornia Business & Professions Code Sec. 16750.2. Service on the Attorney General in the
State of California can be effected by serving Office of the Attorney General, 1300 "I" Street,
Sacaramento, California 95814-2919.
PARTIES
1. Plaintiff Low T Center, L.L.C. is a Texas limited liability company which may be
served by and through its attorney of record, David J. Moraine, 60 Village Lane, Suite 110,
Colleyville, Texas 76034.
2. Defendant Beckman Coulter, Inc. is a Delaware chartered corporation based in
California, but registered and doing business in Texas, with entity privileges in this state.
Defendant's principal place of business in this state is located in this county at Beckman Coulter,
Inc., Irving Campus, 3131 W. Royal Lane, Irving, Texas 75063. Defendant is represented by
Sidley Austin LLP, 2001 Ross Avenue, Suite 3600, Dallas, Texas 75201, and has appeared herein
by and through a general appearance.
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Plaintiff's Second Amended Petition and Original Answer Page 2 of 28
3. Counterdefendant Her Kare Holdings, L.L.C. is a Texas limited liability company
which may be served by and through its attorney of record, David J. Moraine, 60 Village Lane,
Suite 110, Colleyville, Texas.
LONG ARM JURISDICTION
4. Texas has jurisdiction over the parties to this suit, and this court has subject matter
jurisdiction over the claims made the basis of this suit. This Court further has jurisdiction under
the Texas long-arm statute. This is because the defendant engages in business in this state and
the causes of action asserted herein arise from business done in this state and this county.
Defendant directs its marketing and advertising to this state for the purpose of soliciting business
in this state. Defendant contracts with Texas residents and performance of the contracts was to
occur and did occur in this state. Defendants are parties to agreements, and the agreements were
to be performed in Texas.
5. Texas has specific jurisdiction over the defendant because there is a substantial
connection between Defendant's contacts with this state and the operative facts of this litigation.
Defendant employed and contracted Texas residents in this state in connection with Defendant's
business in this state. Defendant is a party to agreements made the basis of this suit, and the
agreements were to be performed in Texas.
6. Defendant has purposefully availed itself of the privilege of conducting business
in this state.
7. The assumption of jurisdiction by the court over the defendant does not offend
traditional notions of fair play and substantial justice, and does not deprive Defendant of due
process as guaranteed by the Constitution of the United States.
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Plaintiff's Second Amended Petition and Original Answer Page 3 of 28
GOVERNING LAW
8. The claims made by and between Plaintiff and Defendant are governed by
California substantive law.
9. The claims made by and between Defendant and Counterdefendant Her Hare
Holdings, L.L.C. are governed by Texas substantive law.
JURISDICTION AND VENUE
10. This Court has personal jurisdiction over the parties, and subject matter
jurisdiction. This Court is a Court of proper venue because a substantial portion of the acts and
omissions made the basis of this petition occurred in this county, and the contracts and
agreements by and between the parties required performance in this county. Defendant further
maintains a principal place of business in this state where the decision makers for the
organization within this state conduct the daily affairs of the organization, at Beckman Coulter,
Inc., Irving Campus, 3131 W. Royal Lane, Irving, Texas 75063.
FACTS
11. Plaintiff is a medical management services organization providing laboratory
operations and ancillary support services to clients in the clinical health market. These
laboratories employ testing performed on an immunoassay analyzer.
12. Counterdefendant Her Kare Holdings, L.L.C. is an intellectual property holding
company that owns certain trademarks. It has no relationship with Counterplaintiff.
13. Defendant (Beckman) is a manufacturer of laboratory analyzers, reagents and
supplies. It develops, manufactures and markets products, including its Access 2 Immunoassay
Analyzer, and immunoassay reagents and supplies. Beckman presently provides supplies to
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Plaintiff's Second Amended Petition and Original Answer Page 4 of 28
more than 275,000 Beckman Coulter systems in operations globally. It is the world's largest
company devoted solely to biomedical testing. Beckman exerts significant market dominance
and influence in the Immunoassay Reagents and Supplies market where it maintains a "top 5"
market share. Defendant ships its reagents, supplies, and analyzers to Texas and California and
engages in commerce in those states.
14. In July 2013, Beckman approached Plaintiff and offered to place its Access 2
Analyzers in certain locations to be designated by Plaintiff, including locations in Texas and
California. At the time, Plaintiff was investigating other manufacturers to determine an
appropriate immunoassay analyzer to be placed with Plaintiff's affiliates in locations across the
country. Plaintiff's affiliates engage in testing for testosterone deficiency, and perform laboratory
analyses measuring testosterone, PSA, SHBG and other indicators in a patient's blood. During
several meetings, representatives of Defendant who were trying to convince Plaintiff to utilize
Defendant's Access 2 Immunoassay system, made representations regarding average "cost per
test," and promised that the Access 2 could perform the testing required by Plaintiff in a cost-
efficient manner in conformance with Defendant's representations. Defendant's agents cited
internal tests and studies and represented that these were accurate and reliable, and that the
Access 2 would perform at the economic levels represented.
15. At the time, Beckman knew that the controls, calibrations, and internal testing
required by the Access 2 would make the performance figures cited by Defendant highly
unlikely, if not impossible to meet, however it failed to advise Plaintiff of this fact. Defendant
was further aware of other internal studies which negated the performance figures cited by
Defendant, but failed to disclose the existence of those studies or the results thereof.
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Plaintiff's Second Amended Petition and Original Answer Page 5 of 28
16. Relying on Beckman's representations, Plaintiff entered into a reagent rental
agreement with Beckman. A "sole source agreement" (Agreement) was executed provided that
Beckman would place an Access 2 Analyzer in facilities designated by Low T Center, L.L.C.
(designated as "the Customer.") These analyzers remained the property of Beckman during the
term of the Agreement as they were deemed to be rented, but in exchange for the no-cost rental
agreement, the Customer must only purchase reagents and supplies from Beckman or its
designee.
17. The original Agreement provided that Beckman's designee was McKesson
Pharmaceutical Company (McKesson). The Agreement is designed to prohibit Plaintiff from
purchasing reagents and supplies from Defendant's competitors. In exchange for the promise of
exclusivity, it also gave Plaintiff the right to purchase reagents and supplies from Beckman at an
approximate 60% discounted rate off list, and gave Plaintiff that right for five years.
18. In making the Agreement, Defendant expressly and impliedly represented and
warranted that it would supply an adequate stock of reagents and supplies for sale to Defendant.,
and would sell at the reduced rate. As a material inducement to enter into the Agreement,
Beckman also promised to service and maintain each Access 2 Immonassay Analyzer, agreeing
to a maximum turnaround time for service and all-inclusive service contract, all at no cost to
Plaintiff. It also agreed to provide training, travel, lodging and meals at its expense for each
analyzer ordered. It failed to perform as agreed.
19. The Agreement was executed on August 7, 2013. That Agreement provided for
the purchase of "the minimum number of Reagents and Supply Items by dollar amount" (rather
than by facility.) Since the intial agreement was executed in 2013, it has been amended 20 times,
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Plaintiff's Second Amended Petition and Original Answer Page 6 of 28
changing or clariying several material terms of the Agreement. The latest amendment occurred
on October 6, 2014, and is attached as Exhibit A. Since 2013, Plaintiff has placed more than
15,000 orders under the Agreement, with its order volume steadily increasing. Plaintiff has paid
over $2,256,055.70 under the Agreement during the three years prior to filing this action.
20. As Plaintiff utilized the Beckman equipment, it became clear that the
representations and warranties made by Beckman regarding "cost per test" were false. The true
cost of reagents and supplies was substantially more than what Beckman represented, and the
cost per test figures nearly doubled what was previously represented by Beckman. The Access 2
analyzer failed its internal testing and controls approximately 40% of the time, resulting in
higher costs attributable to malfunctions of the instrument. Beckman was aware of these failures
and frequently corresponded with Plaintiff about "known" issues, and software and hardware
updates which allegedly would be released sometime in the future to remedy same. Further,
Beckman charged for items and service calls which were included under the all-inclusive service
contract. Beckman further failed to adequately maintain the equipment, frequently missing its
appointments for service, and in some instances, refusing to provide service whatsoever.
21. The Agreement specifically incorporates the Beckman RMA (Return Materials
Authorization) policy. The Beckman RMA policy states that if Beckman issues an RMA, it
"shall issue" a credit for products returned pursuant to the RMA.
22. In late 2014 - early 2015, an affiliated entity operating clinic locations in
California, Nevada and Illinois closed some of those locations. In February 2015, Beckman
issued RMAs for each analyzer, delivered Plaintiff decontamination instructions, and then sent
its technicians to take possession of the analyzers. Although required under the Agreement,
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Plaintiff's Second Amended Petition and Original Answer Page 7 of 28
Beckman refused to credit Plaintiff for the RMA'd analyzers. While the initial policy stated that
RMAs would not be issued for analyzers covered by a reagent rental agreement, when Beckman
offered the RMA to Plaintiff, and Plaintiff accepted the RMA by preparing the instruments for
return, implementing decontamination procedures, de-installing the instruments, and turning
same over to Beckman in return for the RMA, Beckman became bound to credit Plaintiff for the
return of the instruments. The contract was evidenced by the actions of the parties. Cal. Com.
Code Ann. § 2207.
23. Although Beckman issued RMAs for each analyzer and picked up each analyzer,
on March 10, 2015 Beckman delivered a fabricated set of invoices to Plaintiff's accounting
department seeking payment for over $1,500,000 in estimated charges for "future" supplies
which it contended "will not be ordered" over the subsequent four years. It charged sales tax on
each of the non-existent products and fraudulently invoiced Plaintiff for same (although it never
remitted same to the State of California). Beckman did not furnish or deliver any of these
reagents or supplies. The invoice included centers that never opened and instruments never
placed in service. The invoices fraudulently cited "Purchase Orders" dated February 15, 2015.
Plaintiff never issued such purchase orders. The invoice did not come from McKesson, from
whom Plaintiff regularly ordered and was ordering reagents and supplies, but from Beckman
itself.
24. At the time, Plaintiff was committed to and still ordering reagents and supplies.
Under the amended agreement, Plaintiff had exceeded the commitment amount of reagents even
though at least three more years were left in the term of the agreement within which Plaintiff had
the right to order additional reagents and supplies. Plaintiff filed this suit seeking a resolution of
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Plaintiff's Second Amended Petition and Original Answer Page 8 of 28
the contractual issue with Beckman, and seeking declaratory relief regarding the legality of
Beckman's conduct and the Agreement itself.
25. Thereafter, Plaintiff learned that Beckman was refusing to permit McKesson to fill
orders for reagents and supplies placed by Plaintiff, and was refusing to provide service under
the Agreement, leaving many analyzers out of service and unusable. After multiple rounds of
inquiries, on June 15, 2015 Bill Smith at McKesson contacted Plaintiff and informed Plaintiff
that Kunar Patel, a lawyer in Beckman's legal department, (and Beckman's agent) on behalf of
Beckman, instructed McKesson to "hold" all orders placed by Plaintiff for any Low T Center
facilities, and not to ship supplies (in violation of the Agreement). Beckman further refused to
respond to Plaintiff's service calls, or maintain the equipment in the field.
26. Smith suggested obtaining necessary reagents and supplies by shipping same to
HerKare facilities. When Patel learned that supplies were being shipped to HerKare locations,
he, on behalf of Beckman, instructed McKesson not to service any of the analyzers, and not to
fill any orders placed by Plaintiff or HerKare, regardless of the facility, all in violation of the
Agreement. At all times herein, Patel was acting in the course and scope of his employment with
Beckman, and Beckman is liable for Patel's acts and omissions under the doctrine of respondeat
superior.
27. On September 28, 2015 Plaintiff confirmed with Patel that Beckman would not
service the analyzers in the field, and would no longer permit Plaintiff to purchase reagents or
supplies. Without reagents and supplies, the analyzers were useless. Beckman's refusal to
provide reagents and supplies made it impossible for Plaintiff to continue to purchase reagents
and supplies. Without service, the unreliable Access 2 analyzers were worthless. The refusal to
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Plaintiff's Second Amended Petition and Original Answer Page 9 of 28
service the equipment, and the refusal to provide reagents and supplies, were each repudiations
of and material breaches of the Agreement. Beckman then issued RMAs for every analyzer in
service, and from October 2015 - December 2015 Plaintiff decontaminated and uninstalled the
instruments at Beckman's instruction. Plaintiff cooperated with Beckman's requests in relation to
returning the instruments, and each was returned in good working order. Although it had
repudiated the contract and breached same, on October 29, 2015 Patel delivered another set of
fictitious invoices for reagents and supplies "not furnished" in the amount of $5,845,145.68 and
demanded immediate payment of same.
28. The invoices and demand from Patel sought collection of usurious interest
charges. Patel demanded payment of "interest at the rate of one and a half percent (1 1/2%) per
month from the due date of the invoices, as set out in the Agreement." Beckman again refused to
issue a credit for the analyzers returned pursuant to the RMAs.
29. The foregoing paragraphs are incorporated into each of the preceding and
following paragraphs of this pleading as if fully set forth therein. Each cause of action is pleaded
in the alternative with all facts in support of such cause of action deemed incorporated therein.
TYING VIOLATIONS OF CARTWRIGHT ACT AND
TEXAS FREE ENTERPRISE AND ANTITRUST ACT OF 1983
30. Beckman Coulter is the major player in the Immunoassay Market. It's instruments
are very expensive, and typically require investments in infrastructure and planning as they are
implemented into customer labs. The U.S. Immunoassay Market is a multi-billion dollar major
medical market that is expected to grow from 2012 to 2017 at a combined annual growth rate in
excess of 9%. The market has a very limited number of major competitors, namely Beckman
Coulter, Abbott, Roche, Siemens, and Alere. Beckman reports that these top 5 companies in the
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Plaintiff's Second Amended Petition and Original Answer Page 10 of 28
industry account "for over 70%" of the market. Before being acquired by Danaher Corp.,
Beckman stated in its public filings, "We have significant market positions in the three largest
fields . . . immunoassay (18% United States; 8% worldwide) . . . " which is consistent with its
status as a "Top 5" industry dominator.
31. Beckman reports that in the United States, "clinical diagnostic testing informs
over 60-70% of critical health care decisions." Immunoassay analyzers performing this testing
require reagents and supplies to function. Many different companies sell the reagents and
supplies used in immunoassay analyzers, and which may include reagents, antibodies, sample
diluents, conjugate stabilizer/diluents, coating buffers, wash buffers, substrates, and other
disposable medical supplies (e.g. "Reagents and Supplies").
32. Beckman rents or leases its Immunoassay instruments to customers in low or no-
cost arrangements in over 81% of customer applications, in exchange for the execution of a
"Sole Source Agreement" sometimes referred to by Beckman as a "Reagent Rental Agreement."
Once installed, that agreement requires the customer to purchase all of its Reagents and Supplies
from Beckman, or a distributor designated by Beckman. The "sole source agreement" forecloses
competition for the purchase of Reagents and Supplies by requiring customers to use Beckman
or its designee as a "sole source" for these Reagents and Supplies.
33. Because of the infrastructure and planning necessary to install a Beckman device,
there is a high switching cost for customers once a Beckman system has been implemented,
which limits competition and holds customers captive. One industry analyst comments that "it is
nigh impossible for customers to switch away from [Beckman's] clinical diagnostic products . . ."
By requiring a customer to purchase reagents and supplies solely from Beckman as a condition
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Plaintiff's Second Amended Petition and Original Answer Page 11 of 28
of keeping the analyzer, Beckman can effectively limit competition in the Reagents and Supplies
market once its analyzer is installed. Beckman itself reports in financial filings, "Approximately
81% of our total revenue is generated by recurring revenue from consumable supplies (including
reagent test kits), services and operating type lease ('OTL') payments." Beckman generates
illegal revenue from these arrangements in terms of multi-billions of dollars every year.
34. In this case, Beckman tied the reagent rental agreement to a requirement that
Plaintiff purchase Beckman supplies and reagents from Beckman exclusively through it or its
designated distributor McKesson. When a lease or rental agreement is made conditioned on the
purchase of another product, the transaction constitutes an illegal tying agreement. Hamro v.
Shell Oil Co., 674 F.2d 784, 787 (9th Cir. 1982). Since 1936, the antitrust laws have held that
tying the provision of a lease or rental agreement, to the purchase of supplies for the equipment
covered by the lease, constitutes a per se illegal tying arrangement. Intl. Bus. Machines Corp. v.
U.S., 298 U.S. 131, 137 (1936). See also U.S. v. Microsoft Corp., 253 F.3d 34, 90 (D.C. Cir.
2001) - conditioning lease of one product on the purchase of a supply per se tying violation.
Accord, Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495, 509 (1969). The Cartwright
Act (Cal. Bus. & Prof. Code, § 16720), and the Texas Free Enterprise and Antitrust Act of 1983,
§15.05(c), all prohibit tying. “A tying arrangement under antitrust laws exists when a party
agrees to sell one product (the tying product) on the condition that the buyer also purchases a
different product (the tied product), thereby curbing competition in the sale of the tied product.”
Freeman v. San Diego Assn. of Realtors, 77 Cal.App.4th 171, 183–184, 91 Cal.Rptr.2d 534
(1999), citing Northern Pac. R. Co. v. United States, 356 U.S. 1, 5–6, 78 S.Ct. 514, 2 L.Ed.2d
545 ((1958); see also Belton v. Comcast Cable Holdings, LLC, 60 Cal. Rptr. 3d 631, 640 (Cal.
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Plaintiff's Second Amended Petition and Original Answer Page 12 of 28
App. 1st Dist. 2007). Where such an arrangement is found, it is illegal per se; that is, the seller's
justifications for the arrangement are not measured by a rule of reasonableness. 35. The
product which is the inducement for the arrangement is called the “tying product” (here,
Defendant's Immunoassay Analyzer) and the product or service that the buyer is required to
purchase is the “tied" product (here, Reagents and Supplies). Tying arrangements usually
involve circumstances where the purchaser must buy the tying and tied product from the same
seller. However, an illegal tying also exists where the purchaser is required to buy the tied
product from a third party (in this case, McKesson). In such situations, the third party is
designated by the seller (in this case, in the sole source agreement). Suburban Mobile Homes,
Inc. v. AMFAC Communities, Inc. 101 Cal.App.3d 532, 547, 161 Cal.Rptr. 811 (1980); Sports
Racing Serv. v. Sports Car Club of Amer., 131 F.3d 874, 887 (10th Cir. 1997; Abraham v.
Intermountain Health Care, Inc., 461 F.3d 1249, 1265 (10th Cir. 2006); SC Manufactured
Homes, Inc. v. Liebert, 76 Cal. Rptr. 3d 73, 86 (Cal. App. 2d Dist. 2008), as modified on denial
of reh'g (May 19, 2008).
36. Plaintiff was forced to purchase millions of dollars in Reagents and Supplies
under the illegal agreement. Plaintiff asserts a claim for illegal tying, and shows Defendant's
sole source agreement, and requirement that Defendant purchase all reagents and supplies from
Plaintiff during the term of the agreement in exchange for Plaintiff providing its Access 2
Analyzer, constitutes an illegal arrangement because the provision of the Access 2 Analyzer was
linked to the sale of Beckman reagents and supplies. Defendant has sufficient economic power
in the Immunoassay market to coerce the purchase of the tied product; a substantial amount of
sale was effected in the tied product; and Plaintiff sustained pecuniary loss as a consequence of
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Plaintiff's Second Amended Petition and Original Answer Page 13 of 28
the unlawful act. Plaintiff further shows that a total amount of business, substantial enough in
terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie.
The illegal conduct of the Defendant is the legal cause of the damages incurred by the Plaintiff.
37. Plaintiff's damages include monies it was forced to expend under the illegal
agreement, costs of instrument removal and decontamination, return expenses, and other related
economic damages all in excess of the minimum jurisdictional limits of this Court. Plaintiff
seeks disgorgement and restitution of the illegally obtained funds, and shows that Defendant
Beckman has been unjustly enriched as the result of its illegal conduct. Plaintiff further seeks
treble damages and recovery of its attorneys fees and costs of court pursuant to the Cartwright
Act, as well as the Texas Free Enterprise and Antitrust Act of 1983.
EXCLUSIVE DEALING VIOLATIONS OF CARTWRIGHT ACT
38. Plaintiff asserts a claim under the California Cartwright Act, and shows that
Defendant's sole source agreement constitutes an illegal exclusive dealing arrangement. West's
Ann.Cal.Bus. & Prof.Code § 16720. An exclusive dealing arrangement is, as the name implies,
one in which, for example, a seller and a buyer agree that the buyer will buy only the seller's
product or that the buyer will not buy the product of one of seller's competitors. The existence of
an exclusive dealing arrangement may be expressed or implied. Standard Co. v. Magrane–
Houston Co., 258 U.S. 346, 356–357, 42 S.Ct. 360, 66 L.Ed. 653 (1922); United Shoe Mach. Co.
v. United States, 258 U.S. 451, 457, 42 S.Ct. 363, 66 L.Ed. 708 (1922); Fisherman's Wharf Bay
Cruise Corp. v. Super. Ct., 7 Cal. Rptr. 3d 628, 652 (Cal. App. 1st Dist. 2003). It is “well settled .
. . that agreements, arrangements or conditions that unreasonably restrain trade by boycotts or
tie-ins may be inferred from the circumstances surrounding a course of dealing.” LePage's Inc.
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Plaintiff's Second Amended Petition and Original Answer Page 14 of 28
v. 3M, 324 F.3d 141, 157 (3rd Cir. 2003). Here, Beckman's "sole source agreement" which
provided that Plaintiff must "purchase all Immunoassay reagents, supplies and consummables in
this Agreement from Beckman Coulter" directly evidences and implies an illegal exclusive
dealing arrangement.
39. Plaintiff was forced to purchase millions of dollars in Reagents and Supplies
under the illegal agreement. Plaintiff asserts a claim under the Cartwright Act and shows that
Defendant's sole source agreement, and requirement that Defendant purchase all reagents and
supplies from Plaintiff during the term of the agreement, constitutes and illegal exclusive dealing
arrangement. The illegal conduct of the Defendant is the legal cause of the damages incurred by
the Plaintiff.
40. Plaintiff's damages include monies it was forced to expend under the illegal
agreement, costs of instrument removal and decontamination, return expenses, and other related
economic damages all in excess of the minimum jurisdictional limits of this Court. Plaintiff
seeks disgorgement and restitution of the illegally obtained funds, and shows that Defendant
Beckman has been unjustly enriched as the result of its illegal conduct. Plaintiff further seeks
treble damages and recovery of its attorneys fees and costs of court pursuant to the Cartwright
Act, as well as the Texas Free Enterprise and Antitrust Act of 1983.
DECLARATORY RELIEF
41. Pursuant to California law and the Texas Declaratory Judgments Act,
Counterdefendants seek a declaration from this Court that the Beckman Coulter Reagent Rental
Agreement constitutes an unlawful tying arrangement and is void.
42. Pursuant to California law and the Texas Declaratory Judgments Act,
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Plaintiff's Second Amended Petition and Original Answer Page 15 of 28
Counterdefendants seek a declaration from this Court that the Beckman Coulter Reagent Rental
Agreement constitutes an unlawful exclusive dealing arrangement and is void.
43. Pursuant to California law and the Texas Declaratory Judgments Act,
Counterdefendants further seek a declaration from this Court that the Beckman Coulter Reagent
Rental Agreement unreasonably restrains trade is and unlawful pursuant to Cal. Bus. &
Prof.Code §16720 and Tex. Bus. & Com. Code §15.05.
44. Counterdefendants pray for the recovery of their reasonable and necessary
attorneys fees and costs incurred herein.
BREACH OF CONTRACT
45. Defendant has materially and substantively breached its contractual obligations by
failing to provide maintenance, failing to fulfill orders for supplies and reagents, failing to issue
refunds for RMAs, failing to abide by its service obligations, failing to provide training, and
failing to provide reagents and supplies at the discounted rate set forth in the Agreement.
Plaintiff sues for breach of contract, and recovery of its actual, economic, and consequential
damages caused by the Defendant's breach. Plaintiff further sues to recover its reasonable and
necessary attorneys fees and costs of court. Defendant's breach was the legal cause of the
damages suffered by Plaintiff, and such damages were the natural, foreseeable and probable
consequences of Defendant's wrongful actions.
BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING
46. Under California law, ‘(t)here is an implied covenant of good faith and fair
dealing in every contract . . . that neither party will do anything which will injure the right of the
other to receive the benefits of the agreement. Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1036
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Plaintiff's Second Amended Petition and Original Answer Page 16 of 28
(Cal. 1973). The violation of that duty sounds in tort notwithstanding that it may also constitute
a breach of contract. Id. No breach of the contract by Plaintiff alleged by Defendant, no matter
how far-fetched, excuses Beckman from its "duty, implied by law, of good faith and fair dealing.
In other words, [Beckman's duty] is unconditional and independent of the performance of
[Plaintiff's] contractual obligations. Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1040 (Cal.
1973). Here Beckman breached its implied duty of good faith and fair dealing by refusing to
honor Plaintiff's orders for reagents and supplies, and then suing Plaintiff for not ordering
reagents and supplies. Beckman breached its implied duty of good faith and fair dealing for
declaring a default under the Agreement, at a time prior to the expiration of the term of the
Agreement. Beckman breached its duty of good faith and fair dealing by wrongfully
accelerating its claimed "minimum annual commitment" and then canceling the Agreement when
Plaintiff refused to pay the wrongful invoices. Beckman breached its implied duty of good faith
and fair dealing by invoicing Plaintiff for items not ordered, and then canceling the contract for
failure to pay the false charges. Beckman breached its duty of good faith and fair dealing by
failing to honestly and fairly deal with Plaintiff, and terminating Plaintiff's right to the pricing
discounts for the remainder of the term of the Agreement. Beckman breached its duty of good
faith and fair dealing by failing to issue refunds and credits pursuant to the RMA policy which
was incorporated into the Agreement. Beckman breached its duty of good faith and fair dealing
by invoicing Plaintiff for false and fraudulent sales tax charges. Beckman breached its implied
duty of good faith and fair dealing by withholding service, supplies and training, and prohibiting
its distributor from filling orders placed by Plaintiff. All of Beckman's breaches injured the
rights of Plaintiff to receive the benefits of the Agreement.
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Plaintiff's Second Amended Petition and Original Answer Page 17 of 28
47. Plaintiff has been damaged and has incurred costs to secure replacement
equipment, install same, costs of training, maintenance, service and repairs, increased costs of
reagents and supplies, and loss of use of each Beckman Access 2 Analyzer. Plaintiff further
incurred damages for loss of the implied rental value of each instrument, which Beckman was
obligated to provide under the Agreement at no charge, in the approximate amount of
$3,700,686.00. Plaintiff further incurred damages for loss of value related to Beckman's pricing
commitment set forth in Exhibit B of the Agreement. Beckman committed to honor pricing for
reagents and supplies for five years at the set rate of $38,611.40 for the reagents and supplies
listed on Exhibit B. The actual cost of such reagents and supplies without the benefit of the
pricing agreement is $95,719.50. See Exhibit D. Under the Agreement, Plaintiff acquired a
pricing concession equivalent to at least $57,108.10 per year of the Agreement, or $285,540.50
over five years. Based on Plaintiff's actual usage at all locations, Plaintiff lost the benefit of its
bargain with Defendant in the amount of at least $9,422,836.50 in price reductions, based on an
average thirty-six month remainder in the pricing term.
48. In doing the acts set forth herein, Defendant engaged in conduct which was
intended to cause substantial financial injury to the Plaintiff. Under California law, exemplary
damages are recoverable for breach of the duty of the good faith and fair dealing arising from a
contract. Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corp., 164 Cal. Rptr. 3d 811,
826 (Cal. App. 2d Dist. 2013), as modified on denial of reh'g (Dec. 24, 2013); Cal. Civ. Code
Ann. §3294. Plaintiff further sues for the recovery of punitive damages in relation to Plaintiff's
claim for breach of the duty of good faith and fair dealing. Such damages shall be determined in
an amount determined by the trier of fact considering (1) the degree of reprehensibility of the
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Plaintiff's Second Amended Petition and Original Answer Page 18 of 28
defendant's conduct; (2) the amount of compensatory damages awarded; and (3) the defendant's
financial condition or wealth. Mobasser v. Yermian, B247269, 2014 WL 1603324, at *8 (Cal.
App. 2d Dist. Apr. 22, 2014), reh'g denied (May 19, 2014), review denied (July 16, 2014). The
“wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in
order to accomplish the statutory objective." Adams v. Murakami, 813 P.2d 1348, 1350 (Cal.
1991).
PROMISSORY FRAUD AND FRAUDULENT INDUCEMENT
49. An action for promissory fraud may lie where a defendant fraudulently induces
the plaintiff to enter into a contract. Lazar v. Super. Ct., 909 P.2d 981, 985 (Cal. 1996); Chelini v.
Nieri, 32 Cal.2d 480, 487, 196 P.2d 915 (1948). To plead this tort, Plaintiff must show that
“defendant intended to and did induce plaintiff . . . by making promises . . . he did not intend
to . . . perform.” Lazar v. Super. Ct., 909 P.2d 981, 985 (Cal. 1996) [Citations omitted]. Here,
Defendant induced Plaintiff into the Agreement through Defendant's representations regarding
the Access 2 Analyzer's reliability, and the "cost per test." Because of the analyzer's high failure
rate, the true cost of reagents and supplies was substantially more than what Beckman
represented, and the true cost per test figures nearly doubled what was represented by Beckman.
Beckman knew this, but presented a "best case" cost per test figure, otherwise concealing the
actual cost per test figure. Plaintiff reasonably relied on the representations from Beckman and
its representatives in agreeing to enter into the Agreement. In particular, Beckman's
representations about the true cost per test were substantially and materially understated, and
Beckman knew or had reason to know that the information it provided to Plaintiff during the
sales process was false and/or materially inaccurate. Although Beckman knew that the
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Plaintiff's Second Amended Petition and Original Answer Page 19 of 28
information was incorrect, Beckman made no effort to correct its misstatements, and sought
Plaintiff's reliance on same. Beckman, in making partial representations to Plaintiff, had a duty
to fully disclose each of its internal studies relating to its cost-per-test, and not just "best case"
figures. Although Beckman had a duty to make full disclosure, Beckman and its agents did not
do so, and materially concealed the information from Plaintiff. Plaintiff did rely on the false
and/or materially misleading statements of Beckman and its representatives, and such reliance
was a material factor in inducing Plaintiff to agree to select Beckman as a vendor. Plaintiff was
damaged by the fraudulent conduct of Beckman and has been damaged as a result in an amount
in excess of the minimum jurisdictional limits of this Court. Defendant fraudulently induced
Plaintiff to enter into the agreements by making representations and warranties that it knew to be
false or grossly inflated. Plaintiff sues for all legally recoverable damages, including but not
limited to disgorgement, forfeiture and restitution of all amounts paid as the result of such
fraudulent inducement.
50. Plaintiff further sues for the recovery of exemplary damages in an amount
determined by the trier of fact arising from the Defendant's fraud, and shows that Defendant
made intentional misrepresentations, deceit, or concealment of a material fact known to the
Defendant with the intention on the part of the Defendant of thereby depriving Plaintiff of
property or legal rights or otherwise causing injury. Cal. Civ. Code Ann. §3294.
SPECIAL EXCEPTION - LOST GROSS SALES
51. Counterdefendants allege that Counterplaintiff's claim for lost gross sales does not
state a claim for recoverable damages in either Texas or California. " (“[T]he bare assertion that
contracts were lost does not demonstrate a reasonably certain objective determination of lost
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Plaintiff's Second Amended Petition and Original Answer Page 20 of 28
profits.”); Rusty's Weigh Scales & Serv., Inc. v. N. Texas Scales, Inc., 314 S.W.3d 105, 111 (Tex.
App. –El Paso 2010, no pet.). A contention of lost gross sales does not constitute a claim for
recoverable damages. Holt Atherton Industries, Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992).
Under California law, a damage award for lost profits must be based on net profits, which are the
gains made from sales “after deducting the value of the labor, materials, rents, and all expenses,
together with the interest of the capital employed.” "To recover lost profits, a plaintiff must
show loss of net pecuniary gain, not just loss of gross revenue." Parlour Enterprises, Inc. v.
Kirin Group, Inc., 152 Cal.App.4th 281, 287–288 (2007). Counterdefendants each specially
except and object and show the counterplaintiff's claim does not place them on fair notice of the
damages sought in relation to Counterplaintiff's purported breach of contract and promissory
estoppel claims. Counterdefendants request that Counterplaintiff be required to replead with
specificity to specify the lost profits it claims it suffered. Counterdefendants request that the
Court afford Counterplaintiff a reasonable time to replead, and in the absence of such repleader,
issue an order striking Counterplaintiff's claims based on damages of "lost gross sales."
GENERAL DENIAL
51. Counterdefendants enter a general denial.
AFFIRMATIVE DEFENSES
52. By way of affirmative defense, if any be necessary, Counterdefendants plead that
Counterplaintiff has not incurred any legally recoverable damages.
53. By way of affirmative defense, if any be necessary, Counterdefendants plead that
Counterplaintiff's claims are barred by the doctrine of unclean hands.
54. By way of affirmative defense, if any be necessary, Counterdefendants plead that
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Plaintiff's Second Amended Petition and Original Answer Page 21 of 28
Counterplaintiff's claims are barred by the Counterplaintiff's prior material breach of the
contract.
55. By way of affirmative defense, if any be necessary, Counterdefendants plead that
Counterplaintiff's claims are barred by the Counterplaintiff's repudiation of the contract.
56. By way of affirmative defense, if any be necessary, Counterdefendants plead that
Counterplaintiff is the producing cause of its own damages.
57. By way of affirmative defense, if any be necessary, Counterdefendants plead that
Counterplaintiff failed to mitigate its damages, if any.
58. By way of affirmative defense, if any be necessary, Counterdefendants plead
failure to satisfy conditions precedent.
59. By way of affirmative defense, Counterdefendants plead that the contract sued
upon by Counterplaintiff is illegal and void or voidable.
60. By way of affirmative defense, Counterdefendants plead that Counterplaintiff's
purported damages are too speculative to support recovery.
61. By way of affirmative defense, Counterdefendants plead fraud.
62. By way of affirmative defense, Counterdefendants plead fraudulent inducement.
63. By way of affirmative defense, Counterdefendants plead that the Agreement is not
enforceable without satisfaction of the condition precedent of a purchase order for each location.
Counterdefendants did not issued such a purchase order, and Counterplaintiff's claims for breach
of contract are barred.
64. By way of affirmative defense, Counterdefendants plead that the any annual
commitment is dependent on Counterdefendant acquiring an Access 2 Analyzer. No
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Plaintiff's Second Amended Petition and Original Answer Page 22 of 28
Counterdefendant ever acquired an Access 2 Analyzer, and all such analyzers remained the
property of Counterplaintiff, and are presently in the care, custody and control of
Counterplaintiff. Consequently, Counterplaintiff has failed to show that a condition precedent to
recovery has been satisified.
65. By way of affirmative defense, if any be necessary, Counterdefendants show that
Counterplaintiff failed to provide goods or services pursuant to the Agreement, but purports to
assert "minimum annual commitment" as a form of liquidated damages. However, a measure of
recovery seeking the recovery of gross revenues for supplies not delivered and services not
performed do not estimate a fair average compensation for any loss that may be sustained. The
damages sought by Counterplaintiff constitute an illegal penalty, are unconscionable, and are
non-recoverable. Pursuant to both Texas and California law, liquidated damages not reasonably
related to or grossly disproportional to actual damages are unenforceable and void as penalties.
66. By way of affirmative defense, if any be necessary, Counterdefendants plead the
right of offset and credit.
67. By way of affirmative defense, if any be necessary, Counterdefendants show that
the amended agreement was fully performed by Counterdefendants prior to the repudiation and
material breach by Counterplaintiff.
VERIFIED PLEA OF PAYMENT
68. Counterdefendants enter a plea of payment in the amount of $2,256,055.70, and
show that such amounts were paid under the Agreement $568,479.95 in 2013, $1,532,360.58 in
2014, and $ 155,215.17 in 2015 prior to repudiation by Counterplaintiff.
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Plaintiff's Second Amended Petition and Original Answer Page 23 of 28
PLEA TO THE JURISDICTION
69. Counterdefendants allege that Counterplaintiff lacks standing to assert claims
premised on Counterdefendants' alleged failure to commit to placing orders for reagents and
supplies from McKesson
Preview
FILED DALLAS COUNTY 1/25/2016 FELICIA9:17:02 PITREP DISTRICT CLERK CAUSE NUMBER DC-15-08587 LOW T CENTER, L.L.C. § IN THE DISTRICT COURT Plaintiff § § v. § § BECKMAN COULTER, INC. § 191st JUDICIAL DISTRICT Defendant/Counterplaintiff § § v. § § LOW T CENTER, L.L.C. AND § HER KARE HOLDINGS, L.L.C. § Counterdefendants § DALLAS COUNTY, TEXAS PLAINTIFF'S SECOND AMENDED PETITION AND ORIGINAL ANSWER TO COUNTERCLAIM TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW PLAINTIFF and COUNTERDEFENDANTS, and make and file this Second Amended Petition and Original Answer to Counterclaims and in support thereof, respectfully shows as follows: (i) Pursuant to Rule 47 of the Texas Rules of Civil Procedure, this suit seeks monetary monetary relief within the jurisdictional limits of this Court over $1,000,000.00, together with all other relief to which Plaintiff may be entitled, and is governed by a Level 3 Discovery Control Plan. Plaintiff has not completed its calculation of economic damages but will supplement with the maximum amount of actual and exemplary damages it seeks in this suit at the time of such calculation. At this time, subject to Plaintiff's right to amend under the Texas Rules of Civil Procedure, Plaintiff states that the maximum damages that it seeks to recover is $15,000,000.00 in economic damages, plus costs of court and attorneys fees. Plaintiff further seeks exemplary damages in an amount determined by the trier of fact, but not more than twice ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 1 of 28 the economic damages sought by Plaintiff. (ii) Defendant is requested to disclose that information required to be disclosed pursuant to Texas Rule of Civil Procedure Rule 194.2 within thirty days of the date of service hereof, with respect to each Counterdefendant named above. (iii) The Texas Attorney General is a notice party pursuant to Texas Business and Commerce Code Sec. 15.21(c). Service on the Texas Attorney General Antitrust Division can be effected by serving a copy of this pleading at Office of the Attorney General, 300 W. 15th Street Austin, Texas 78701. (iv) The Attorney General of the State of California is a notice party pursuant to Calfornia Business & Professions Code Sec. 16750.2. Service on the Attorney General in the State of California can be effected by serving Office of the Attorney General, 1300 "I" Street, Sacaramento, California 95814-2919. PARTIES 1. Plaintiff Low T Center, L.L.C. is a Texas limited liability company which may be served by and through its attorney of record, David J. Moraine, 60 Village Lane, Suite 110, Colleyville, Texas 76034. 2. Defendant Beckman Coulter, Inc. is a Delaware chartered corporation based in California, but registered and doing business in Texas, with entity privileges in this state. Defendant's principal place of business in this state is located in this county at Beckman Coulter, Inc., Irving Campus, 3131 W. Royal Lane, Irving, Texas 75063. Defendant is represented by Sidley Austin LLP, 2001 Ross Avenue, Suite 3600, Dallas, Texas 75201, and has appeared herein by and through a general appearance. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 2 of 28 3. Counterdefendant Her Kare Holdings, L.L.C. is a Texas limited liability company which may be served by and through its attorney of record, David J. Moraine, 60 Village Lane, Suite 110, Colleyville, Texas. LONG ARM JURISDICTION 4. Texas has jurisdiction over the parties to this suit, and this court has subject matter jurisdiction over the claims made the basis of this suit. This Court further has jurisdiction under the Texas long-arm statute. This is because the defendant engages in business in this state and the causes of action asserted herein arise from business done in this state and this county. Defendant directs its marketing and advertising to this state for the purpose of soliciting business in this state. Defendant contracts with Texas residents and performance of the contracts was to occur and did occur in this state. Defendants are parties to agreements, and the agreements were to be performed in Texas. 5. Texas has specific jurisdiction over the defendant because there is a substantial connection between Defendant's contacts with this state and the operative facts of this litigation. Defendant employed and contracted Texas residents in this state in connection with Defendant's business in this state. Defendant is a party to agreements made the basis of this suit, and the agreements were to be performed in Texas. 6. Defendant has purposefully availed itself of the privilege of conducting business in this state. 7. The assumption of jurisdiction by the court over the defendant does not offend traditional notions of fair play and substantial justice, and does not deprive Defendant of due process as guaranteed by the Constitution of the United States. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 3 of 28 GOVERNING LAW 8. The claims made by and between Plaintiff and Defendant are governed by California substantive law. 9. The claims made by and between Defendant and Counterdefendant Her Hare Holdings, L.L.C. are governed by Texas substantive law. JURISDICTION AND VENUE 10. This Court has personal jurisdiction over the parties, and subject matter jurisdiction. This Court is a Court of proper venue because a substantial portion of the acts and omissions made the basis of this petition occurred in this county, and the contracts and agreements by and between the parties required performance in this county. Defendant further maintains a principal place of business in this state where the decision makers for the organization within this state conduct the daily affairs of the organization, at Beckman Coulter, Inc., Irving Campus, 3131 W. Royal Lane, Irving, Texas 75063. FACTS 11. Plaintiff is a medical management services organization providing laboratory operations and ancillary support services to clients in the clinical health market. These laboratories employ testing performed on an immunoassay analyzer. 12. Counterdefendant Her Kare Holdings, L.L.C. is an intellectual property holding company that owns certain trademarks. It has no relationship with Counterplaintiff. 13. Defendant (Beckman) is a manufacturer of laboratory analyzers, reagents and supplies. It develops, manufactures and markets products, including its Access 2 Immunoassay Analyzer, and immunoassay reagents and supplies. Beckman presently provides supplies to ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 4 of 28 more than 275,000 Beckman Coulter systems in operations globally. It is the world's largest company devoted solely to biomedical testing. Beckman exerts significant market dominance and influence in the Immunoassay Reagents and Supplies market where it maintains a "top 5" market share. Defendant ships its reagents, supplies, and analyzers to Texas and California and engages in commerce in those states. 14. In July 2013, Beckman approached Plaintiff and offered to place its Access 2 Analyzers in certain locations to be designated by Plaintiff, including locations in Texas and California. At the time, Plaintiff was investigating other manufacturers to determine an appropriate immunoassay analyzer to be placed with Plaintiff's affiliates in locations across the country. Plaintiff's affiliates engage in testing for testosterone deficiency, and perform laboratory analyses measuring testosterone, PSA, SHBG and other indicators in a patient's blood. During several meetings, representatives of Defendant who were trying to convince Plaintiff to utilize Defendant's Access 2 Immunoassay system, made representations regarding average "cost per test," and promised that the Access 2 could perform the testing required by Plaintiff in a cost- efficient manner in conformance with Defendant's representations. Defendant's agents cited internal tests and studies and represented that these were accurate and reliable, and that the Access 2 would perform at the economic levels represented. 15. At the time, Beckman knew that the controls, calibrations, and internal testing required by the Access 2 would make the performance figures cited by Defendant highly unlikely, if not impossible to meet, however it failed to advise Plaintiff of this fact. Defendant was further aware of other internal studies which negated the performance figures cited by Defendant, but failed to disclose the existence of those studies or the results thereof. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 5 of 28 16. Relying on Beckman's representations, Plaintiff entered into a reagent rental agreement with Beckman. A "sole source agreement" (Agreement) was executed provided that Beckman would place an Access 2 Analyzer in facilities designated by Low T Center, L.L.C. (designated as "the Customer.") These analyzers remained the property of Beckman during the term of the Agreement as they were deemed to be rented, but in exchange for the no-cost rental agreement, the Customer must only purchase reagents and supplies from Beckman or its designee. 17. The original Agreement provided that Beckman's designee was McKesson Pharmaceutical Company (McKesson). The Agreement is designed to prohibit Plaintiff from purchasing reagents and supplies from Defendant's competitors. In exchange for the promise of exclusivity, it also gave Plaintiff the right to purchase reagents and supplies from Beckman at an approximate 60% discounted rate off list, and gave Plaintiff that right for five years. 18. In making the Agreement, Defendant expressly and impliedly represented and warranted that it would supply an adequate stock of reagents and supplies for sale to Defendant., and would sell at the reduced rate. As a material inducement to enter into the Agreement, Beckman also promised to service and maintain each Access 2 Immonassay Analyzer, agreeing to a maximum turnaround time for service and all-inclusive service contract, all at no cost to Plaintiff. It also agreed to provide training, travel, lodging and meals at its expense for each analyzer ordered. It failed to perform as agreed. 19. The Agreement was executed on August 7, 2013. That Agreement provided for the purchase of "the minimum number of Reagents and Supply Items by dollar amount" (rather than by facility.) Since the intial agreement was executed in 2013, it has been amended 20 times, ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 6 of 28 changing or clariying several material terms of the Agreement. The latest amendment occurred on October 6, 2014, and is attached as Exhibit A. Since 2013, Plaintiff has placed more than 15,000 orders under the Agreement, with its order volume steadily increasing. Plaintiff has paid over $2,256,055.70 under the Agreement during the three years prior to filing this action. 20. As Plaintiff utilized the Beckman equipment, it became clear that the representations and warranties made by Beckman regarding "cost per test" were false. The true cost of reagents and supplies was substantially more than what Beckman represented, and the cost per test figures nearly doubled what was previously represented by Beckman. The Access 2 analyzer failed its internal testing and controls approximately 40% of the time, resulting in higher costs attributable to malfunctions of the instrument. Beckman was aware of these failures and frequently corresponded with Plaintiff about "known" issues, and software and hardware updates which allegedly would be released sometime in the future to remedy same. Further, Beckman charged for items and service calls which were included under the all-inclusive service contract. Beckman further failed to adequately maintain the equipment, frequently missing its appointments for service, and in some instances, refusing to provide service whatsoever. 21. The Agreement specifically incorporates the Beckman RMA (Return Materials Authorization) policy. The Beckman RMA policy states that if Beckman issues an RMA, it "shall issue" a credit for products returned pursuant to the RMA. 22. In late 2014 - early 2015, an affiliated entity operating clinic locations in California, Nevada and Illinois closed some of those locations. In February 2015, Beckman issued RMAs for each analyzer, delivered Plaintiff decontamination instructions, and then sent its technicians to take possession of the analyzers. Although required under the Agreement, ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 7 of 28 Beckman refused to credit Plaintiff for the RMA'd analyzers. While the initial policy stated that RMAs would not be issued for analyzers covered by a reagent rental agreement, when Beckman offered the RMA to Plaintiff, and Plaintiff accepted the RMA by preparing the instruments for return, implementing decontamination procedures, de-installing the instruments, and turning same over to Beckman in return for the RMA, Beckman became bound to credit Plaintiff for the return of the instruments. The contract was evidenced by the actions of the parties. Cal. Com. Code Ann. § 2207. 23. Although Beckman issued RMAs for each analyzer and picked up each analyzer, on March 10, 2015 Beckman delivered a fabricated set of invoices to Plaintiff's accounting department seeking payment for over $1,500,000 in estimated charges for "future" supplies which it contended "will not be ordered" over the subsequent four years. It charged sales tax on each of the non-existent products and fraudulently invoiced Plaintiff for same (although it never remitted same to the State of California). Beckman did not furnish or deliver any of these reagents or supplies. The invoice included centers that never opened and instruments never placed in service. The invoices fraudulently cited "Purchase Orders" dated February 15, 2015. Plaintiff never issued such purchase orders. The invoice did not come from McKesson, from whom Plaintiff regularly ordered and was ordering reagents and supplies, but from Beckman itself. 24. At the time, Plaintiff was committed to and still ordering reagents and supplies. Under the amended agreement, Plaintiff had exceeded the commitment amount of reagents even though at least three more years were left in the term of the agreement within which Plaintiff had the right to order additional reagents and supplies. Plaintiff filed this suit seeking a resolution of ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 8 of 28 the contractual issue with Beckman, and seeking declaratory relief regarding the legality of Beckman's conduct and the Agreement itself. 25. Thereafter, Plaintiff learned that Beckman was refusing to permit McKesson to fill orders for reagents and supplies placed by Plaintiff, and was refusing to provide service under the Agreement, leaving many analyzers out of service and unusable. After multiple rounds of inquiries, on June 15, 2015 Bill Smith at McKesson contacted Plaintiff and informed Plaintiff that Kunar Patel, a lawyer in Beckman's legal department, (and Beckman's agent) on behalf of Beckman, instructed McKesson to "hold" all orders placed by Plaintiff for any Low T Center facilities, and not to ship supplies (in violation of the Agreement). Beckman further refused to respond to Plaintiff's service calls, or maintain the equipment in the field. 26. Smith suggested obtaining necessary reagents and supplies by shipping same to HerKare facilities. When Patel learned that supplies were being shipped to HerKare locations, he, on behalf of Beckman, instructed McKesson not to service any of the analyzers, and not to fill any orders placed by Plaintiff or HerKare, regardless of the facility, all in violation of the Agreement. At all times herein, Patel was acting in the course and scope of his employment with Beckman, and Beckman is liable for Patel's acts and omissions under the doctrine of respondeat superior. 27. On September 28, 2015 Plaintiff confirmed with Patel that Beckman would not service the analyzers in the field, and would no longer permit Plaintiff to purchase reagents or supplies. Without reagents and supplies, the analyzers were useless. Beckman's refusal to provide reagents and supplies made it impossible for Plaintiff to continue to purchase reagents and supplies. Without service, the unreliable Access 2 analyzers were worthless. The refusal to ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 9 of 28 service the equipment, and the refusal to provide reagents and supplies, were each repudiations of and material breaches of the Agreement. Beckman then issued RMAs for every analyzer in service, and from October 2015 - December 2015 Plaintiff decontaminated and uninstalled the instruments at Beckman's instruction. Plaintiff cooperated with Beckman's requests in relation to returning the instruments, and each was returned in good working order. Although it had repudiated the contract and breached same, on October 29, 2015 Patel delivered another set of fictitious invoices for reagents and supplies "not furnished" in the amount of $5,845,145.68 and demanded immediate payment of same. 28. The invoices and demand from Patel sought collection of usurious interest charges. Patel demanded payment of "interest at the rate of one and a half percent (1 1/2%) per month from the due date of the invoices, as set out in the Agreement." Beckman again refused to issue a credit for the analyzers returned pursuant to the RMAs. 29. The foregoing paragraphs are incorporated into each of the preceding and following paragraphs of this pleading as if fully set forth therein. Each cause of action is pleaded in the alternative with all facts in support of such cause of action deemed incorporated therein. TYING VIOLATIONS OF CARTWRIGHT ACT AND TEXAS FREE ENTERPRISE AND ANTITRUST ACT OF 1983 30. Beckman Coulter is the major player in the Immunoassay Market. It's instruments are very expensive, and typically require investments in infrastructure and planning as they are implemented into customer labs. The U.S. Immunoassay Market is a multi-billion dollar major medical market that is expected to grow from 2012 to 2017 at a combined annual growth rate in excess of 9%. The market has a very limited number of major competitors, namely Beckman Coulter, Abbott, Roche, Siemens, and Alere. Beckman reports that these top 5 companies in the ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 10 of 28 industry account "for over 70%" of the market. Before being acquired by Danaher Corp., Beckman stated in its public filings, "We have significant market positions in the three largest fields . . . immunoassay (18% United States; 8% worldwide) . . . " which is consistent with its status as a "Top 5" industry dominator. 31. Beckman reports that in the United States, "clinical diagnostic testing informs over 60-70% of critical health care decisions." Immunoassay analyzers performing this testing require reagents and supplies to function. Many different companies sell the reagents and supplies used in immunoassay analyzers, and which may include reagents, antibodies, sample diluents, conjugate stabilizer/diluents, coating buffers, wash buffers, substrates, and other disposable medical supplies (e.g. "Reagents and Supplies"). 32. Beckman rents or leases its Immunoassay instruments to customers in low or no- cost arrangements in over 81% of customer applications, in exchange for the execution of a "Sole Source Agreement" sometimes referred to by Beckman as a "Reagent Rental Agreement." Once installed, that agreement requires the customer to purchase all of its Reagents and Supplies from Beckman, or a distributor designated by Beckman. The "sole source agreement" forecloses competition for the purchase of Reagents and Supplies by requiring customers to use Beckman or its designee as a "sole source" for these Reagents and Supplies. 33. Because of the infrastructure and planning necessary to install a Beckman device, there is a high switching cost for customers once a Beckman system has been implemented, which limits competition and holds customers captive. One industry analyst comments that "it is nigh impossible for customers to switch away from [Beckman's] clinical diagnostic products . . ." By requiring a customer to purchase reagents and supplies solely from Beckman as a condition ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 11 of 28 of keeping the analyzer, Beckman can effectively limit competition in the Reagents and Supplies market once its analyzer is installed. Beckman itself reports in financial filings, "Approximately 81% of our total revenue is generated by recurring revenue from consumable supplies (including reagent test kits), services and operating type lease ('OTL') payments." Beckman generates illegal revenue from these arrangements in terms of multi-billions of dollars every year. 34. In this case, Beckman tied the reagent rental agreement to a requirement that Plaintiff purchase Beckman supplies and reagents from Beckman exclusively through it or its designated distributor McKesson. When a lease or rental agreement is made conditioned on the purchase of another product, the transaction constitutes an illegal tying agreement. Hamro v. Shell Oil Co., 674 F.2d 784, 787 (9th Cir. 1982). Since 1936, the antitrust laws have held that tying the provision of a lease or rental agreement, to the purchase of supplies for the equipment covered by the lease, constitutes a per se illegal tying arrangement. Intl. Bus. Machines Corp. v. U.S., 298 U.S. 131, 137 (1936). See also U.S. v. Microsoft Corp., 253 F.3d 34, 90 (D.C. Cir. 2001) - conditioning lease of one product on the purchase of a supply per se tying violation. Accord, Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495, 509 (1969). The Cartwright Act (Cal. Bus. & Prof. Code, § 16720), and the Texas Free Enterprise and Antitrust Act of 1983, §15.05(c), all prohibit tying. “A tying arrangement under antitrust laws exists when a party agrees to sell one product (the tying product) on the condition that the buyer also purchases a different product (the tied product), thereby curbing competition in the sale of the tied product.” Freeman v. San Diego Assn. of Realtors, 77 Cal.App.4th 171, 183–184, 91 Cal.Rptr.2d 534 (1999), citing Northern Pac. R. Co. v. United States, 356 U.S. 1, 5–6, 78 S.Ct. 514, 2 L.Ed.2d 545 ((1958); see also Belton v. Comcast Cable Holdings, LLC, 60 Cal. Rptr. 3d 631, 640 (Cal. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 12 of 28 App. 1st Dist. 2007). Where such an arrangement is found, it is illegal per se; that is, the seller's justifications for the arrangement are not measured by a rule of reasonableness. 35. The product which is the inducement for the arrangement is called the “tying product” (here, Defendant's Immunoassay Analyzer) and the product or service that the buyer is required to purchase is the “tied" product (here, Reagents and Supplies). Tying arrangements usually involve circumstances where the purchaser must buy the tying and tied product from the same seller. However, an illegal tying also exists where the purchaser is required to buy the tied product from a third party (in this case, McKesson). In such situations, the third party is designated by the seller (in this case, in the sole source agreement). Suburban Mobile Homes, Inc. v. AMFAC Communities, Inc. 101 Cal.App.3d 532, 547, 161 Cal.Rptr. 811 (1980); Sports Racing Serv. v. Sports Car Club of Amer., 131 F.3d 874, 887 (10th Cir. 1997; Abraham v. Intermountain Health Care, Inc., 461 F.3d 1249, 1265 (10th Cir. 2006); SC Manufactured Homes, Inc. v. Liebert, 76 Cal. Rptr. 3d 73, 86 (Cal. App. 2d Dist. 2008), as modified on denial of reh'g (May 19, 2008). 36. Plaintiff was forced to purchase millions of dollars in Reagents and Supplies under the illegal agreement. Plaintiff asserts a claim for illegal tying, and shows Defendant's sole source agreement, and requirement that Defendant purchase all reagents and supplies from Plaintiff during the term of the agreement in exchange for Plaintiff providing its Access 2 Analyzer, constitutes an illegal arrangement because the provision of the Access 2 Analyzer was linked to the sale of Beckman reagents and supplies. Defendant has sufficient economic power in the Immunoassay market to coerce the purchase of the tied product; a substantial amount of sale was effected in the tied product; and Plaintiff sustained pecuniary loss as a consequence of ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 13 of 28 the unlawful act. Plaintiff further shows that a total amount of business, substantial enough in terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie. The illegal conduct of the Defendant is the legal cause of the damages incurred by the Plaintiff. 37. Plaintiff's damages include monies it was forced to expend under the illegal agreement, costs of instrument removal and decontamination, return expenses, and other related economic damages all in excess of the minimum jurisdictional limits of this Court. Plaintiff seeks disgorgement and restitution of the illegally obtained funds, and shows that Defendant Beckman has been unjustly enriched as the result of its illegal conduct. Plaintiff further seeks treble damages and recovery of its attorneys fees and costs of court pursuant to the Cartwright Act, as well as the Texas Free Enterprise and Antitrust Act of 1983. EXCLUSIVE DEALING VIOLATIONS OF CARTWRIGHT ACT 38. Plaintiff asserts a claim under the California Cartwright Act, and shows that Defendant's sole source agreement constitutes an illegal exclusive dealing arrangement. West's Ann.Cal.Bus. & Prof.Code § 16720. An exclusive dealing arrangement is, as the name implies, one in which, for example, a seller and a buyer agree that the buyer will buy only the seller's product or that the buyer will not buy the product of one of seller's competitors. The existence of an exclusive dealing arrangement may be expressed or implied. Standard Co. v. Magrane– Houston Co., 258 U.S. 346, 356–357, 42 S.Ct. 360, 66 L.Ed. 653 (1922); United Shoe Mach. Co. v. United States, 258 U.S. 451, 457, 42 S.Ct. 363, 66 L.Ed. 708 (1922); Fisherman's Wharf Bay Cruise Corp. v. Super. Ct., 7 Cal. Rptr. 3d 628, 652 (Cal. App. 1st Dist. 2003). It is “well settled . . . that agreements, arrangements or conditions that unreasonably restrain trade by boycotts or tie-ins may be inferred from the circumstances surrounding a course of dealing.” LePage's Inc. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 14 of 28 v. 3M, 324 F.3d 141, 157 (3rd Cir. 2003). Here, Beckman's "sole source agreement" which provided that Plaintiff must "purchase all Immunoassay reagents, supplies and consummables in this Agreement from Beckman Coulter" directly evidences and implies an illegal exclusive dealing arrangement. 39. Plaintiff was forced to purchase millions of dollars in Reagents and Supplies under the illegal agreement. Plaintiff asserts a claim under the Cartwright Act and shows that Defendant's sole source agreement, and requirement that Defendant purchase all reagents and supplies from Plaintiff during the term of the agreement, constitutes and illegal exclusive dealing arrangement. The illegal conduct of the Defendant is the legal cause of the damages incurred by the Plaintiff. 40. Plaintiff's damages include monies it was forced to expend under the illegal agreement, costs of instrument removal and decontamination, return expenses, and other related economic damages all in excess of the minimum jurisdictional limits of this Court. Plaintiff seeks disgorgement and restitution of the illegally obtained funds, and shows that Defendant Beckman has been unjustly enriched as the result of its illegal conduct. Plaintiff further seeks treble damages and recovery of its attorneys fees and costs of court pursuant to the Cartwright Act, as well as the Texas Free Enterprise and Antitrust Act of 1983. DECLARATORY RELIEF 41. Pursuant to California law and the Texas Declaratory Judgments Act, Counterdefendants seek a declaration from this Court that the Beckman Coulter Reagent Rental Agreement constitutes an unlawful tying arrangement and is void. 42. Pursuant to California law and the Texas Declaratory Judgments Act, ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 15 of 28 Counterdefendants seek a declaration from this Court that the Beckman Coulter Reagent Rental Agreement constitutes an unlawful exclusive dealing arrangement and is void. 43. Pursuant to California law and the Texas Declaratory Judgments Act, Counterdefendants further seek a declaration from this Court that the Beckman Coulter Reagent Rental Agreement unreasonably restrains trade is and unlawful pursuant to Cal. Bus. & Prof.Code §16720 and Tex. Bus. & Com. Code §15.05. 44. Counterdefendants pray for the recovery of their reasonable and necessary attorneys fees and costs incurred herein. BREACH OF CONTRACT 45. Defendant has materially and substantively breached its contractual obligations by failing to provide maintenance, failing to fulfill orders for supplies and reagents, failing to issue refunds for RMAs, failing to abide by its service obligations, failing to provide training, and failing to provide reagents and supplies at the discounted rate set forth in the Agreement. Plaintiff sues for breach of contract, and recovery of its actual, economic, and consequential damages caused by the Defendant's breach. Plaintiff further sues to recover its reasonable and necessary attorneys fees and costs of court. Defendant's breach was the legal cause of the damages suffered by Plaintiff, and such damages were the natural, foreseeable and probable consequences of Defendant's wrongful actions. BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING 46. Under California law, ‘(t)here is an implied covenant of good faith and fair dealing in every contract . . . that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1036 ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 16 of 28 (Cal. 1973). The violation of that duty sounds in tort notwithstanding that it may also constitute a breach of contract. Id. No breach of the contract by Plaintiff alleged by Defendant, no matter how far-fetched, excuses Beckman from its "duty, implied by law, of good faith and fair dealing. In other words, [Beckman's duty] is unconditional and independent of the performance of [Plaintiff's] contractual obligations. Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 1040 (Cal. 1973). Here Beckman breached its implied duty of good faith and fair dealing by refusing to honor Plaintiff's orders for reagents and supplies, and then suing Plaintiff for not ordering reagents and supplies. Beckman breached its implied duty of good faith and fair dealing for declaring a default under the Agreement, at a time prior to the expiration of the term of the Agreement. Beckman breached its duty of good faith and fair dealing by wrongfully accelerating its claimed "minimum annual commitment" and then canceling the Agreement when Plaintiff refused to pay the wrongful invoices. Beckman breached its implied duty of good faith and fair dealing by invoicing Plaintiff for items not ordered, and then canceling the contract for failure to pay the false charges. Beckman breached its duty of good faith and fair dealing by failing to honestly and fairly deal with Plaintiff, and terminating Plaintiff's right to the pricing discounts for the remainder of the term of the Agreement. Beckman breached its duty of good faith and fair dealing by failing to issue refunds and credits pursuant to the RMA policy which was incorporated into the Agreement. Beckman breached its duty of good faith and fair dealing by invoicing Plaintiff for false and fraudulent sales tax charges. Beckman breached its implied duty of good faith and fair dealing by withholding service, supplies and training, and prohibiting its distributor from filling orders placed by Plaintiff. All of Beckman's breaches injured the rights of Plaintiff to receive the benefits of the Agreement. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 17 of 28 47. Plaintiff has been damaged and has incurred costs to secure replacement equipment, install same, costs of training, maintenance, service and repairs, increased costs of reagents and supplies, and loss of use of each Beckman Access 2 Analyzer. Plaintiff further incurred damages for loss of the implied rental value of each instrument, which Beckman was obligated to provide under the Agreement at no charge, in the approximate amount of $3,700,686.00. Plaintiff further incurred damages for loss of value related to Beckman's pricing commitment set forth in Exhibit B of the Agreement. Beckman committed to honor pricing for reagents and supplies for five years at the set rate of $38,611.40 for the reagents and supplies listed on Exhibit B. The actual cost of such reagents and supplies without the benefit of the pricing agreement is $95,719.50. See Exhibit D. Under the Agreement, Plaintiff acquired a pricing concession equivalent to at least $57,108.10 per year of the Agreement, or $285,540.50 over five years. Based on Plaintiff's actual usage at all locations, Plaintiff lost the benefit of its bargain with Defendant in the amount of at least $9,422,836.50 in price reductions, based on an average thirty-six month remainder in the pricing term. 48. In doing the acts set forth herein, Defendant engaged in conduct which was intended to cause substantial financial injury to the Plaintiff. Under California law, exemplary damages are recoverable for breach of the duty of the good faith and fair dealing arising from a contract. Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corp., 164 Cal. Rptr. 3d 811, 826 (Cal. App. 2d Dist. 2013), as modified on denial of reh'g (Dec. 24, 2013); Cal. Civ. Code Ann. §3294. Plaintiff further sues for the recovery of punitive damages in relation to Plaintiff's claim for breach of the duty of good faith and fair dealing. Such damages shall be determined in an amount determined by the trier of fact considering (1) the degree of reprehensibility of the ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 18 of 28 defendant's conduct; (2) the amount of compensatory damages awarded; and (3) the defendant's financial condition or wealth. Mobasser v. Yermian, B247269, 2014 WL 1603324, at *8 (Cal. App. 2d Dist. Apr. 22, 2014), reh'g denied (May 19, 2014), review denied (July 16, 2014). The “wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in order to accomplish the statutory objective." Adams v. Murakami, 813 P.2d 1348, 1350 (Cal. 1991). PROMISSORY FRAUD AND FRAUDULENT INDUCEMENT 49. An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract. Lazar v. Super. Ct., 909 P.2d 981, 985 (Cal. 1996); Chelini v. Nieri, 32 Cal.2d 480, 487, 196 P.2d 915 (1948). To plead this tort, Plaintiff must show that “defendant intended to and did induce plaintiff . . . by making promises . . . he did not intend to . . . perform.” Lazar v. Super. Ct., 909 P.2d 981, 985 (Cal. 1996) [Citations omitted]. Here, Defendant induced Plaintiff into the Agreement through Defendant's representations regarding the Access 2 Analyzer's reliability, and the "cost per test." Because of the analyzer's high failure rate, the true cost of reagents and supplies was substantially more than what Beckman represented, and the true cost per test figures nearly doubled what was represented by Beckman. Beckman knew this, but presented a "best case" cost per test figure, otherwise concealing the actual cost per test figure. Plaintiff reasonably relied on the representations from Beckman and its representatives in agreeing to enter into the Agreement. In particular, Beckman's representations about the true cost per test were substantially and materially understated, and Beckman knew or had reason to know that the information it provided to Plaintiff during the sales process was false and/or materially inaccurate. Although Beckman knew that the ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 19 of 28 information was incorrect, Beckman made no effort to correct its misstatements, and sought Plaintiff's reliance on same. Beckman, in making partial representations to Plaintiff, had a duty to fully disclose each of its internal studies relating to its cost-per-test, and not just "best case" figures. Although Beckman had a duty to make full disclosure, Beckman and its agents did not do so, and materially concealed the information from Plaintiff. Plaintiff did rely on the false and/or materially misleading statements of Beckman and its representatives, and such reliance was a material factor in inducing Plaintiff to agree to select Beckman as a vendor. Plaintiff was damaged by the fraudulent conduct of Beckman and has been damaged as a result in an amount in excess of the minimum jurisdictional limits of this Court. Defendant fraudulently induced Plaintiff to enter into the agreements by making representations and warranties that it knew to be false or grossly inflated. Plaintiff sues for all legally recoverable damages, including but not limited to disgorgement, forfeiture and restitution of all amounts paid as the result of such fraudulent inducement. 50. Plaintiff further sues for the recovery of exemplary damages in an amount determined by the trier of fact arising from the Defendant's fraud, and shows that Defendant made intentional misrepresentations, deceit, or concealment of a material fact known to the Defendant with the intention on the part of the Defendant of thereby depriving Plaintiff of property or legal rights or otherwise causing injury. Cal. Civ. Code Ann. §3294. SPECIAL EXCEPTION - LOST GROSS SALES 51. Counterdefendants allege that Counterplaintiff's claim for lost gross sales does not state a claim for recoverable damages in either Texas or California. " (“[T]he bare assertion that contracts were lost does not demonstrate a reasonably certain objective determination of lost ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 20 of 28 profits.”); Rusty's Weigh Scales & Serv., Inc. v. N. Texas Scales, Inc., 314 S.W.3d 105, 111 (Tex. App. –El Paso 2010, no pet.). A contention of lost gross sales does not constitute a claim for recoverable damages. Holt Atherton Industries, Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992). Under California law, a damage award for lost profits must be based on net profits, which are the gains made from sales “after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed.” "To recover lost profits, a plaintiff must show loss of net pecuniary gain, not just loss of gross revenue." Parlour Enterprises, Inc. v. Kirin Group, Inc., 152 Cal.App.4th 281, 287–288 (2007). Counterdefendants each specially except and object and show the counterplaintiff's claim does not place them on fair notice of the damages sought in relation to Counterplaintiff's purported breach of contract and promissory estoppel claims. Counterdefendants request that Counterplaintiff be required to replead with specificity to specify the lost profits it claims it suffered. Counterdefendants request that the Court afford Counterplaintiff a reasonable time to replead, and in the absence of such repleader, issue an order striking Counterplaintiff's claims based on damages of "lost gross sales." GENERAL DENIAL 51. Counterdefendants enter a general denial. AFFIRMATIVE DEFENSES 52. By way of affirmative defense, if any be necessary, Counterdefendants plead that Counterplaintiff has not incurred any legally recoverable damages. 53. By way of affirmative defense, if any be necessary, Counterdefendants plead that Counterplaintiff's claims are barred by the doctrine of unclean hands. 54. By way of affirmative defense, if any be necessary, Counterdefendants plead that ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 21 of 28 Counterplaintiff's claims are barred by the Counterplaintiff's prior material breach of the contract. 55. By way of affirmative defense, if any be necessary, Counterdefendants plead that Counterplaintiff's claims are barred by the Counterplaintiff's repudiation of the contract. 56. By way of affirmative defense, if any be necessary, Counterdefendants plead that Counterplaintiff is the producing cause of its own damages. 57. By way of affirmative defense, if any be necessary, Counterdefendants plead that Counterplaintiff failed to mitigate its damages, if any. 58. By way of affirmative defense, if any be necessary, Counterdefendants plead failure to satisfy conditions precedent. 59. By way of affirmative defense, Counterdefendants plead that the contract sued upon by Counterplaintiff is illegal and void or voidable. 60. By way of affirmative defense, Counterdefendants plead that Counterplaintiff's purported damages are too speculative to support recovery. 61. By way of affirmative defense, Counterdefendants plead fraud. 62. By way of affirmative defense, Counterdefendants plead fraudulent inducement. 63. By way of affirmative defense, Counterdefendants plead that the Agreement is not enforceable without satisfaction of the condition precedent of a purchase order for each location. Counterdefendants did not issued such a purchase order, and Counterplaintiff's claims for breach of contract are barred. 64. By way of affirmative defense, Counterdefendants plead that the any annual commitment is dependent on Counterdefendant acquiring an Access 2 Analyzer. No ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 22 of 28 Counterdefendant ever acquired an Access 2 Analyzer, and all such analyzers remained the property of Counterplaintiff, and are presently in the care, custody and control of Counterplaintiff. Consequently, Counterplaintiff has failed to show that a condition precedent to recovery has been satisified. 65. By way of affirmative defense, if any be necessary, Counterdefendants show that Counterplaintiff failed to provide goods or services pursuant to the Agreement, but purports to assert "minimum annual commitment" as a form of liquidated damages. However, a measure of recovery seeking the recovery of gross revenues for supplies not delivered and services not performed do not estimate a fair average compensation for any loss that may be sustained. The damages sought by Counterplaintiff constitute an illegal penalty, are unconscionable, and are non-recoverable. Pursuant to both Texas and California law, liquidated damages not reasonably related to or grossly disproportional to actual damages are unenforceable and void as penalties. 66. By way of affirmative defense, if any be necessary, Counterdefendants plead the right of offset and credit. 67. By way of affirmative defense, if any be necessary, Counterdefendants show that the amended agreement was fully performed by Counterdefendants prior to the repudiation and material breach by Counterplaintiff. VERIFIED PLEA OF PAYMENT 68. Counterdefendants enter a plea of payment in the amount of $2,256,055.70, and show that such amounts were paid under the Agreement $568,479.95 in 2013, $1,532,360.58 in 2014, and $ 155,215.17 in 2015 prior to repudiation by Counterplaintiff. ______________________________________________________________________________ Plaintiff's Second Amended Petition and Original Answer Page 23 of 28 PLEA TO THE JURISDICTION 69. Counterdefendants allege that Counterplaintiff lacks standing to assert claims premised on Counterdefendants' alleged failure to commit to placing orders for reagents and supplies from McKesson