JNJ V BSX Johnsons Findings of Fact and Proposed Conclusions of Law

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 1 of 141
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
x
JOHNSON & JOHNSON, a New Jersey
:
Corporation,
:
:
Plaintiff,
:
:
- against :
:
GUIDANT CORPORATION, an Indiana
:
Corporation,
:
:
Defendant.
:
x
Civil Action No. 06-7685 (RJS)
JOHNSON & JOHNSONS

POST-TRIAL PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Harold P. Weinberger
John P. Coffey
Joel M. Taylor
Jennifer Diana
Michelle Ben-David
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Telephone: (212) 715-9100
Attorneys for Plaintiff
KL3 3002155.1
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ......................................................................................................... iv
PROCEDURAL HISTORY.............................................................................................................1
FINDINGS OF FACT......................................................................................................................4
The Parties ...........................................................................................................................4
Genesis of the Merger Agreement .......................................................................................4
The Key Terms of the Merger Agreement ...........................................................................7
BSCs Tentative Proposal ..................................................................................................11
The BSC-GDT Confidentiality Agreement .......................................................................12
BSC Pressures Guidant to Furnish Information to Abbott ................................................14
The J&J-GDT Co-Promotion Agreement ..........................................................................25
BSC Makes a Definitive Offer and J&J Discovers Guidants Breach...............................27
The Bidding War................................................................................................................29
FTC Review .......................................................................................................................31
Guidant Terminates the Merger Agreement ......................................................................35
CONCLUSIONS OF LAW ...........................................................................................................37
A.
Jurisdiction .............................................................................................................38
B.
Breach of Contract .................................................................................................38

1.
Breach ........................................................................................................39
a.
b.
Section 4.02(a) ...............................................................................39

(i)
Solicitation .........................................................................40
(ii)
Furnishing Diligence to Abbott .........................................41
(iii)
BSC-GDT Confidentiality Agreement ..............................56
(iv)
Furnishing Diligence to the FTC .......................................58
Section 4.02(b) ...............................................................................58

-i-
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c.
2.
Section 4.02(c) ...............................................................................59
Willful ........................................................................................................60
a.
Absence of Evidence Corroborating Innocent Intent.....................62
b.
Pattern of Misconduct ....................................................................71

(i)
Solicitation .........................................................................71
(ii)
BSC-GDT Confidentiality Agreement ..............................71
(iii)
The Addendum...................................................................75
(iv)
The Co-Promotion Agreement ...........................................78
(v)
Regulatory Strategy ...........................................................80
c.
Concealment of Misconduct ..........................................................80
d.
Lack of Candor ..............................................................................82
e.
Sophistication .................................................................................86
f.
Conclusion .....................................................................................88
3.
Materiality ..................................................................................................89
4.
Causation....................................................................................................94
a.
No Offer Without a Breach ............................................................94
b.
Shareholder Approval ....................................................................96

(i)
Empirical Research ............................................................99
(ii)
Trading Prices ..................................................................100
(iii)
Analyst Reports ................................................................104
(iv)
J&Js Expectations ...........................................................105
5.
Estoppel....................................................................................................106
6.
Damages ...................................................................................................113
a.
Measure of Damages....................................................................113
b.
Proof of Damages ........................................................................117

(i)
Hindsight ..........................................................................119
(ii)
Certainty of Damages ......................................................122

- ii -
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c.
Mitigation.....................................................................................125
d.
Set Off ..........................................................................................127
e.
Prejudgment Interest ....................................................................127
CONCLUSION ............................................................................................................................130
- iii KL3 3002155.1
TABLE OF AUTHORITIES
Page(s)
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Arbitration Between Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc.,
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Arlington State Bank v. Colvin,
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Beard v. Sloan,
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Bernel v. Bernel,
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BKCAP, LLC v. Captec Franchise Trust
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City of New Albany v. Cotner,

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Coffin v. State,
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Fischer v. Heymann,
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Fishman v. Estate of Wirtz,
807 F.2d 520 (7th Cir. 1986) .........................................................................................120, 121
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Folger Adam Co. v. PMI Indus., Inc.,
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Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp.,

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Hastings-Murtagh v. Texas Air Corp.,
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Herz Straw Co. v. Capital Paper Co.,
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- vi KL3 3002155.1
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- vii KL3 3002155.1
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- viii KL3 3002155.1
United States v. Bilzerian,

926 F.2d 1285 (2d Cir. 1991).........................................................................................101 n.23
United States v. Bok,
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United States v. Cartwright,
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- ix KL3 3002155.1
Wright-Moore Corp. v. Ricoh Corp.,

908 F.2d 128 (7th Cir. 1990) .................................................................................................107
Zehner v. Dale,
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Statutes & Rules
28 U.S.C. 1332 ............................................................................................................................38
28 U.S.C. 1391 ............................................................................................................................38
Fed. R. Civ. P. 12(b)(6)....................................................................................................................2
Ind. Code 24-4.6-1-102 .............................................................................................................127
Ind. Code 24-4.6-1-103 .............................................................................................................127
Other Authorities
9 Ind. Law Encyc. Damages 58. ...............................................................................................114
Blacks Law Dictionary (6th ed. 1990) ....................................................................................42, 46
Blacks Law Dictionary (Thompson Reuters 9th ed. 2009) .........................................................45
Dobbs Law of Remedies
3.3(3) (2d ed. 1993) ....................................................................................................116 n.29
3.8(2) (2d ed. 1993) ............................................................................................................119
J. Murray, Contracts 237 (2d rev. ed. 1974) .............................................................................114
Restatement 2d Contracts 344 ..................................................................................................114
-xKL3 3002155.1
1.
Plaintiff Johnson & Johnson (J&J) brings this action against Defendant
Guidant Corporation (Guidant) for breach of contract. J&J alleges that Guidant willfully and
materially breached 4.02 of a November 14, 2005, Amended and Restated Agreement and Plan
of Merger between the parties (the Merger Agreement), which prohibited Guidant from
soliciting, encouraging or facilitating a competing offer unless certain conditions were met.
Specifically, J&J alleges that Guidant impermissibly facilitated such a proposal made by Boston
Scientific Corporation (BSC) by, among other things, secretly furnishing information about
itself to Abbott Laboratories (Abbott), whom BSC had identified as a potential purchaser of
Guidant assets that BSC planned to divest if its proposal was successful, knowing that Abbott
was not permitted to receive such information under the terms of the Merger Agreement.
Guidant denies these allegations and alleges, by way of counterclaim, that any damages for
which it is liable must be set off by a $705 million termination fee that Guidant paid to J&J after
Guidant terminated the Merger Agreement on January 25, 2006 in favor of BSCs proposal.
2.
Having presided over a bench trial in this action, the Court issues the
following findings of fact and conclusions of law, pursuant to Rule 52(a) of the Federal Rules of
Civil Procedure. For the reasons set forth below, the Court finds that Guidant willfully and
materially breached the Merger Agreement. Accordingly, the Court hereby enters judgment for
J&J and awards J&J damages in the amount of $4.235 billion, plus prejudgment interest in the
amount of ___.
PROCEDURAL HISTORY
3.
On September 25, 2006, J&J filed its Complaint in this action alleging that
Guidant breached the Merger Agreement, as well as the implied covenant of good faith and fair
dealing, by disclosing confidential business information to Abbott. (Compl. 44, 53-59, 6064). The Complaint also alleged that Abbott and BSC tortiously interfered with the Merger
KL3 3002155.1
Agreement by inducing Guidant to provide this information to Abbott. (Id., at 65-70). All
three defendants moved to dismiss the claims against them under Rule 12(b)(6) of the Federal
Rules of Civil Procedure. (Doc. Nos. 16, 21).
4.
In an Opinion and Order issued on August 29, 2007, Judge Gerard E.
Lynch, to whom this case was originally assigned, dismissed the tortious interference claims
against BSC and Abbott and the breach of the implied covenant of good faith and fair dealing
claim against Guidant, but denied Guidants motion to dismiss the breach of contract claim.
Johnson & Johnson v. Guidant Corp., 525 F. Supp. 2d 336, 341-42 (S.D.N.Y. 2007) (J&J
Dismissal Decision). In considering Guidants motion to dismiss J&Js breach of contract
claim, Judge Lynch refused to reject, as a matter of law, J&Js principal allegation, namely, that
Guidant provided the due diligence without any inquiry from Abbott that permitted it to do so.
Id. at 344.
5.
On October 1, 2009, following Judge Lynchs elevation to the Second
Circuit, the case was transferred to my docket. (Doc. No. 56). On February 16, 2010, this Court
issued a Memorandum and Order denying J&Js motion to amend the Complaint to reassert
tortious interference claims against Abbott and BSC and to add allegations to its breach of
contract claim against Guidant. Johnson & Johnson v. Guidant Corp., No. 06-cv-7685 (RJS),
2010 WL 571814 (S.D.N.Y. Feb. 16, 2010).1 Following the close of discovery, Guidant filed a
motion for summary judgment on J&Js breach of contract claim. (Doc. No. 78). By Opinion
and Order dated July 7, 2014, this Court denied Guidants motion, finding that a trial was
necessary to determine whether (1) Guidants breach of the Merger Agreement was wilful; (2)
1
In denying J&Js motion to supplement the factual allegations supporting its breach of
contract claim against Guidant, the Court noted that this particular claim had previously been
sustained and that J&J was free to amend its allegations at trial. See Johnson & Johnson v.
Guidant, 2010 WL 571814, at *10.
-2KL3 3002155.1
the breach was material, i.e., it went to the heart of the contract between the parties; and (3)
Guidants breach was a substantial factor in causing any harm suffered by J&J. See Johnson &
Johnson v. Guidant Corp., No. 06-cv-7685 (RJS), 2014 WL 3728598, at *22 (S.D.N.Y. July 7,
2014) (J&J Summary Judgment Decision).
6.
This case proceeded to trial on November 20-25 and December 15-19,
2014. The trial was conducted in accordance with the Courts Individual Rules for the conduct
of non-jury proceedings. The parties submitted affidavits containing the direct testimony of their
respective witnesses to the extent they were under their control, as well as copies of all exhibits
and deposition testimony they intended to offer as evidence at trial.2 The parties were then
permitted to call subpoenaed witnesses not otherwise under their control and to cross-examine
witnesses whose affidavits were submitted by the other party. In all twelve witnesses submitted
affidavits, and nineteen witnesses testified before the Court at trial or by deposition.3 The Court
ruled on several motions in limine and objections made with regard to statements in various
witness affidavits and exhibits. Closing arguments took place on January 21, 2015.
In addition to reviewing the excerpts of deposition transcripts identified by the parties,

the Court watched approximately four hours and forty minutes of clips from videotaped
depositions, which assisted the Courts ability to assess the credibility of certain witnesses.
3
Guidant submitted and, during trial, withdrew affidavits for two witnesses, Neal R. Stoll
and James A. Strain. Excerpts from Stolls deposition were admitted on stipulation of the
parties.
-3-
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FINDINGS OF FACT4
The Parties
7.
J&J is a multi-national manufacturer and distributor of health care,
surgical, biotechnology, and personal hygiene products, as well as a provider of related services
for the consumer, pharmaceutical, medical devices, and diagnostics markets.
8.
Guidant was an Indiana corporation that designed, developed, and
marketed medical devices used in cardiovascular treatment, including drug eluting stents
(DES) and cardio rhythm management (CRM) products. It is now wholly owned by BSC.
Genesis of the Merger Agreement
9.
In August 2004, in connection with their discussion of a potential merger,
J&J and Guidant executed a confidentiality agreement (the J&J-GDT Confidentiality

Agreement), which permitted an exchange of information between the parties and their
Representatives,
defined
as
officers,
directors,
employees,
agents,
advisors
or
representatives . . . . (Kury Ex. 2, at GDT 00016136). Thereafter, on December 15, 2004, J&J
and Guidant executed an initial merger agreement, pursuant to which J&J agreed to pay $25.4
billion, or $76 per share, to acquire Guidant. (Townsend Ex. 1; Stip. 10).
10.
On April 27, 2005, as required by the initial merger agreement, Guidants
shareholders approved the proposed transaction, with 98.92% of voting shareholders voting in
favor. (PX 11, at 7; Kury Ex. 1, at GDT00026955).
11.
The deal raised potential antitrust problems because J&J was one of only
two companies in the United States then marketing cardiac DES, and it was seeking to acquire
4
The following facts are taken from the trial transcript (Tr. __), deposition designations
offered at trial (____ Dep.__), trial affidavits (____ Aff.__), the parties stipulated facts
(Stip.) and the parties exhibits admitted into evidence (____ Ex.__). Trial transcript
references will be followed by the witness name. To the extent that any finding of fact reflects a
legal conclusion, it shall to that extent be deemed a conclusion of law, and vice versa.
-4KL3 3002155.1
Guidant, one of three companies in the process of seeking regulatory approval to market DES.
(Deyo Aff. 4 (PX 16)). To address this issue, on August 12, 2005, J&J and a third-party,
Abbott, entered into an agreement whereby J&J would grant Abbott a non-exclusive license to
certain DES-related patents in the event J&J acquired Guidant. (Id.). On November 2, the
Federal Trade Commission (FTC) conditionally approved the J&J-Guidant merger based on
J&J divesting, licensing, or terminating certain rights or assets of its business in, inter alia, DES.
(Deyo Aff. 5 (PX 16); Deyo Ex. 7).
12.
Beginning in mid-2005, Guidant made a series of announcements
concerning failures of one of its heart defibrillator products, and on September 22, 2005, issued
recalls or safety advisories related to certain of its pacemaker products. (Stips. 13, 14; PX 1).
One week later, The New York Times reported that the Food and Drug Administration (FDA)
had started a criminal investigation of Guidant. (PX 2). On October 18, J&J announced that it
was considering its alternatives under the initial merger agreement, citing Guidants recalls and
related regulatory scrutiny. (PX 4, at JJE00036994).
13.
On October 27, 2005, the week after J&Js announcement, Jeffrey Stute,
an investment banker at J.P. Morgan Chase (J.P. Morgan), and a member of the merger and
acquisition (M&A) team advising Guidant in connection with its prospective merger with J&J,
travelled to Boston and met with BSCs Chief Financial Officer (CFO), Lawrence Best. (Best
Dep. 11:2-15:8; Best Ex. 1, at SS 00112369). During that meeting, Stute and Best discussed a
potential transaction between Guidant and BSC. (Best Dep. 12:18-14:4). Best indicated that
BSC would be interested in pursuing such a transaction and Stute told Best that he would go
back and talk to his client. (Id.).
-5KL3 3002155.1
14.
That same day, BSCs investment bankers at Merrill Lynch & Co.
(Merrill) began discussing how to structure a deal between Guidant and BSC. (Tr. 529:4531:16, 540:14-540:24 (Hartman); PX 33). One of those bankers, Mark Robinson, reported in an
e-mail that Best was fired up. (PX 33, at ML 0078736). Alan Hartman, the head of Merrills
Healthcare M&A group, testified that Best was encouraged that there could be a deal between
BSC and Guidant. (Tr. 523:23-524:18 (Hartman)). By the following day, Merrill bankers were
crunching numbers for an October 31, 2005 presentation to be made to BSC regarding a
potential transaction with Guidant. (Tr. 540:9-541:8 (Hartman); PX 30-32). While Best does
not recall whether he or Stute raised the subject of a possible transaction between Guidant and
BSC during their October 27 meeting (Best Dep. 14:7-14:14), internal Merrill e-mails reflect that
Merrill was not contemplating, and had not begun work on, a possible transaction between BSC
and Guidant before Stute met with Best. (Tr. 533:23-540:24 (Hartman); PX 34-36).
15.
On October 31, 2005, the same day as Merrills initial presentation to BSC
regarding a potential deal with Guidant, J&Js Chairman and Chief Executive Officer (CEO),
William Weldon, called Guidants Chairman, James Cornelius, and informed him that a
mid-$60s repricing of the merger was unacceptable and that J&J intended to issue a press release
to that effect the following morning. (Mulaney Ex. 9, at GDT 00110693). Cornelius asked
Weldon to wait to give Guidant a chance to have a face-to-face meeting of its Board of Directors
scheduled for the following day. (Id.). The next day, Cornelius spoke by telephone with BSCs
Chairman, Peter Nicholas, with whom Cornelius had been good friends . . . for many, many
years. (Best Dep. 15:9-18:3). Nicholas proposed that he and Cornelius meet to discuss a
possible business combination transaction between BSC and Guidant. (Id.). According to Best,
Nicholas wanted to get an idea of what the state of the landscape was with regard to Guidants
-6KL3 3002155.1
transaction with J&J. (Id.). A dinner meeting between Nicholas and Cornelius was scheduled
for the following night. (Best Ex. 2, at BSC 00028512). That afternoon, Cornelius gave a report
about the call during the meeting of Guidants Board of Directors, which met in executive
session to discuss what terms of a renegotiated merger with J&J would be satisfactory.
(Mulaney Ex. 10, at GDT 00346296). That evening, Cornelius and Weldon spoke by telephone
but were not able to close the valuation gap between the two companies. (Best Ex. 3, at
JPMC019067).
16.
The following day, J&J issued a press release announcing that it believed
Guidants recalls and related regulatory investigations had a material adverse effect on Guidant
and that J&J was not required under the terms of the original merger agreement to close the
Gudiant acquisition. (Best Ex. 3, at JPMC019068). On November 7, 2005, Guidant filed a
complaint in this District asserting that all conditions precedent to the merger had been satisfied
and that, pursuant to the initial merger agreement, J&J was required to close the transaction. (PX
5). On November 14, J&J and Guidant settled Guidants lawsuit by entering into the Merger
Agreement, which reflected a revised purchase price of approximately $63 per share, or roughly
$21.5 billion, but otherwise retained substantially the same terms as the initial merger agreement.
(Kury Ex. 9; Stip. 22). J&J estimated that the net present value to J&J of an acquisition of
Guidant at a price of $63 per share was approximately $5.1 billion, an increase of approximately
$1.5 billion from the estimated net present value of the originally contracted for price of $76 per
share. (Korbich Ex. 10, at JJE00134548; Tr. 165:2-166:25 (Deyo)).
The Key Terms of the Merger Agreement
17.
One of the key terms of the Merger Agreement was 4.02. Although
denominated as a No Solicitation provision, it actually prohibited Guidant not just from
-7KL3 3002155.1
soliciting but also knowingly encouraging or taking any other action to facilitate a competing
Takeover Proposal:
[Guidant] shall not, nor shall it authorize or permit any of its
Subsidiaries or any of their respective directors, officers or
employees or any investment banker, financial advisor, attorney,
accountant or other advisor, agent or representative (collectively,
Representatives) retained by it or any of its Subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
knowingly encourage, or take any other action designed to, or
which could reasonably be expected to, facilitate, any Takeover
Proposal or (ii) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any
information, or otherwise cooperate in any way with, any Takeover
Proposal.
(Kury Ex. 9, 4.02(a), at SA 00026226).5
18.
This provision contained an exception that permitted Guidant to furnish
confidential business information in response to an unsolicited Takeover Proposal, at any time

prior to approval of the Merger Agreement by Guidants shareholders, if, but only if, Guidants
Board of Directors reasonably determined that a bona fide, written, unsolicited Takeover
Proposal constituted or was reasonably likely to lead to a Superior Proposal. (Id., 4.02, at
SA 00026226-27). In that event, the only actions that Guidant could take were to furnish such
information to the person making such Takeover Proposal (and its Representatives) and
participate in discussions or negotiations with the person making such Takeover Proposal (and
Takeover Proposal is defined in the No Solicitation provision to mean any inquiry,

proposal or offer from any person relating to, or that could reasonably be expected to lead to, any
direct or indirect acquisition or purchase, in one transaction or a series of transactions, of assets
(including equity securities of any Subsidiary of the Company) or businesses that constitute 15%
or more of the revenues, net income or assets of the Company and its Subsidiaries, taken as a
whole. . . . (Kury Ex. 9, 4.02, at SA 00026227).
-8KL3 3002155.1
its Representatives) regarding such Takeover Proposal.6 (Id.). The term Representatives was
defined slightly differently (but not inconsistently) in the Merger Agreement than in the J&JGDT Confidentiality Agreement to mean Guidants Subsidiaries or any of their respective
directors, officers or employees or any investment banker, financial advisor, attorney, accountant
or other advisor, agent or representative . . . retained by it or any of its Subsidiaries . . . . (Id., at
SA 00026226).
19.
Even then, Guidants right to furnish information in response to a
qualifying Takeover Proposal was subject to compliance with Section 4.02(c), which required
Guidant to keep J&J informed in all material respects of the status and details . . . of any
Takeover Proposal, to promptly advise J&J of the identity of the person making any such
Takeover Proposal and to provide to [J&J] as soon as practicable after receipt or delivery
thereof copies of all correspondence and other written material sent or provided to [Guidant] or
any of its Subsidiaries from any person that describes any of the terms or conditions of any
Takeover Proposal . . . . (Kury Ex. 9, 4.02(a), 4.02(c), at SA 00026227-28). Section 4.02(a)
further provided that Guidant was permitted to furnish information to the person making a
Takeover Proposal only if such information was provided to J&J prior to or substantially
concurrent with the time it [was] provided to such person. (Id., at SA 00026227).
20.
In addition, to ensure that the restrictions as to whom information was
allowed to be provided could not be circumvented, 4.02(a) provided that, in the event Guidant
intended to furnish information in response to a qualifying Takeover Proposal, it was required to
do so pursuant to a confidentiality agreement not less restrictive to such person than the
The clause defined Superior Proposal as a bona fide offer by a third party that would
be more financially favorable than J&Js offer and reasonably capable of being completed.
(Id.).
-9KL3 3002155.1
confidentiality provisions of the [J&J-GDT] Confidentiality Agreement . . . . (Id.; Tr. 340:25341:18 (Townsend); Townsend Aff. 16 (PX 20)).
21.
In the event that Guidant received an unsolicited Takeover Proposal, and
there was a reasonabl[e] determination by the Guidant Board of Directors that the proposal
constituted a Superior Proposal, Guidant could, subject to Section 4.02(c), terminate the
Merger Agreement after giving J&J five business days notice. (Kury Ex. 9, 4.02(b), 7.01(f),
at SA 00026227-28, SA 00026243). Such termination would trigger the payment of a $625
million termination fee to J&J. (Id., 5.06, at SA 00026235-36). Section 7.02 explains, in
relevant part, what would happen if the agreement were terminated:
In the event of termination of this Agreement by either the
Company or Parent . . . this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the
part of Parent, Sub or the Company under this Agreement, other
than the provisions of . . . Section 5.06 [outlining termination fee],
this Section 7.02 and Article VIII, which provisions shall survive
such termination; provided, however, that no such termination
shall relieve any party hereto from any liability or damages
resulting from the wilful and material breach by a party of any of
its representations, warranties, covenants or agreements set forth in
this Agreement.
(Id., 7.02, at SA 00026243).
22.
The amended merger transaction, like the initial merger deal, required
approval by Guidant shareholders (Id., 6.01(a), at SA 00026239) and Guidant was obligated to
recommend approval unless the Board terminated the Merger Agreement pursuant to the abovereferenced provisions. (Id., 5.01(b), at SA 00026230). Guidant understood that the need to
seek shareholder approval for the lower price offered in the Merger Agreement would open the
door for BSC to make and Guidants Board of Directors to consider a competing Takeover
Proposal. (Mulaney Aff. 10 (DX 167)).
- 10 KL3 3002155.1
BSCs Tentative Proposal

23.
On December 5, 2005, BSC indeed made a tentative proposal to acquire
Guidant for $25 billion, or $72 per share. (Kury Ex. 10, at GDT 00111865). Guidant Chairman
Cornelius forwarded BSCs proposal to Guidants Board via e-mail stating [t]he Board will
meet today at 3:00 p.m. (Indy time) to review with outside legal and financial advisors the
surprise Boston Scientific letter and proposed transaction. (Id., at GDT 00111864).
24.
In its proposal, BSC represented that it had conducted a review of the
antitrust issues that will be raised by the proposed transaction and, to address these issues, it
was prepared to divest Guidants vascular intervention [VI] and endovascular [ES]
businesses, while retaining shared rights to Guidants drug eluting stent program. (Id., at GDT
00111866). Before making its proposal, BSC had explored entering into a letter of intent with a
prospective purchaser of the assets to be divested, Medtronic, Inc. (Medtronic), so that it could
identify a specific divestiture partner in its proposal, but Medtronic was not willing to pay what
BSC was asking or to share with BSC the rights to one part of the VI business the DES
technology a position that was unacceptable to BSC. (Best Dep. 29:7-30:21, 41:20-42:3,
70:24-71:10).
Medtronic was not interested in making a bid or joint proposal with BSC.
(Tr. 570:3-570:14 (Hartman)). Instead of arranging a divestiture in advance, BSC decided to

proceed with a generic statement that it would divest certain businesses as part of its proposal to
Guidant. (Best Ex. 15, at ML 0083743; Kury Ex. 10, at GDT 00111866; OBrien Ex. 2, at ML
0083743; Tr. 501:18-501:23 (Hartman)). BSCs proposal did not say that Boston Scientific
intended to have a committed divestiture partner before making a definitive offer. (Tr. 261:17261:21 (OBrien)).
25.
In its proposal, BSC stated that it had received commitment letters from
Bank of America, N.A. [BofA] and Merrill Lynch & Co., for all the financing [it] need[ed] to
- 11 KL3 3002155.1
consummate the proposed transaction. (Kury Ex. 10, at GDT 00111865). The proposal also
identified Merrill and BofA affiliate Banc of America Securities LLC as BSCs financial
advisors. (Id., at GDT 00111867). During a December 5, 2005 conference call with analysts,
Best explained that as part of BSCs financing strategy, BSC intended to use the proceeds of its
planned divestiture to pay down interim loans used to finance the transaction. (Best Ex. 13, at
BSC 00028367; Best Dep. 60:10-61:12).
26.
BSC also stated in its tentative proposal that [t]his letter is not intended to
create or constitute any legally binding obligation, liability or commitment by us regarding the
proposed transaction, and, other than any confidentiality agreement we may enter into with you,
there will be no legally binding contract or agreement between us regarding the proposed
transaction unless and until a definitive merger agreement is executed. (Kury Ex. 10, at GDT
00111866).
The BSC-GDT Confidentiality Agreement
27.
On December 7, 2005, two days after BSC made its tentative proposal,
Guidants Board of Directors determined that it was reasonably likely to lead to a Superior
Proposal. (Strain Ex. 5, at GDT 00357434). That same day, Guidants General Counsel (GC),
Bernard Kury, sent J&Js GC, Russell Deyo, a letter notifying him of Guidants determination.
(Deyo Aff. 7 (PX 16); Kury Ex. 12). In his letter, Kury represented to Deyo, using language
tracking the text of 4.02(a) of the Merger Agreement, that Guidant would enter into
discussions with and provide due diligence information to BSC pursuant to a customary
confidentiality agreement not less restrictive to Boston Scientific than the confidentiality
provisions of the Confidentiality Agreement with J&J. (Kury Ex. 12).
28.
Also on December 7, 2005, Guidants outside counsel, Skadden Arps,
Slate, Meagher & Flom, LLP (Skadden), sent BSCs outside deal counsel, Shearman &
- 12 KL3 3002155.1
Sterling LLP (Shearman), a draft confidentiality agreement governing the exchange of

information between Guidant and BSC. (Kury Ex. 15). Skadden prepared the agreement by
editing an electronic copy of the J&J-GDT Confidentiality Agreement. (Mulaney Ex. 12).
However, the initial version that Skadden sent to Shearman differed from the J&J-GDT
Confidentiality Agreement in that the definition of Representatives entitled to receive Guidant
information was changed to add financing sources. (Kury Ex. 15, at SS 00018021; Tr. 265:15266:5 (OBrien)). Skadden corporate partner Charles Mulaney testified that financing sources
was added to the definition because Skadden understood at the time that BofA and Merrill would
want to do due diligence. (Mulaney Aff. 15 (DX 167)).
29.
Later on December 7, 2005, Skadden corporate partner Brian Duwe sent
Kury an e-mail informing him that BSCs counsel, Shearman, wanted to add to the term
Representatives with whom they can share information third parties reasonably acceptable to
Guidant who [BSC] identifies as potential purchasers of the assets to be divested . . . . (Duwe
Ex. 1, at GDT 00352536). In that e-mail, Duwe advised Kury that Skadden antitrust partner
Neal Stoll and antitrust counsel Ian John are OK with the addition to representatives and that
certain other changes are fine with me. (Id.). Duwes e-mail concluded, [i]f you are ok with
the changes, we will get it wrapped up. (Id.). Kury replied, Ok. (Id.). That same day,
Skadden sent Shearman a revised draft of the agreement that included a sentence stating [w]ith
respect to you, the term Representatives shall also include third parties reasonably satisfactory
to us that are identified to us as potential purchasers of assets to be divested and who execute a
confidentiality agreement reasonably acceptable to us. (Kury Ex. 16, at SS 00074550; Tr.
266:6-267:4 (OBrien)). Kury and BSC GC Paul Sandman thereafter executed the agreement
- 13 KL3 3002155.1
(the BSC-GDT Confidentiality Agreement), which included this foregoing sentence as well as
financing sources in the definition of Representatives. (Kury Ex. 13, at GDT 00134118).
30.
On December 9, 2005, Kury sent Deyo a letter representing that Guidant
had entered into a confidentiality agreement with BSC consistent with [Guidants] obligations
under our Merger Agreement. (Kury Ex. 14). Kury did not inform J&J that financing
sources and potential purchasers of assets to be divested had been added to the definition of
Representatives permitted to receive confidential Guidant information. (Deyo Aff. 8 (PX
16)).
BSC Pressures Guidant to Furnish Information to Abbott
31.
On December 5, 2005, following the announcement of BSCs tentative
proposal, Abbotts Vice President for New Business Development, Sean Murphy, contacted a
banker in Merrills Healthcare M&A group to express interest in purchasing the assets that BSC
planned to divest. (DX 68; Tr. 502:9-503:24 (Hartman)). That same day, Murphy called J&Js
Vice President of New Business Development at Cordis, Susan Morano, and told her that Merrill
had contacted him to see if Abbott might be interested in the assets to be divested, that Abbott
was not interested in the assets, and that he believed that Medtronic was already in the deal.
(Deyo Ex. 12). As of December 5, BSC had not had any discussions with Abbott regarding the
Guidant deal. (Tr. 261:22-261:24 (OBrien)).
32.
Abbott and BSC representatives met to discuss a potential divestiture
transaction on December 12, and then met again on December 16, 2005. (Gunther Dep. 30:234:8; Tr. 294:6-294:7 (OBrien)). According to BSC Deputy GC Lawrence Knopf, during the
December 12 meeting, which Knopf attended, Abbott made clear that it did not want its
involvement in BSCs proposal to become known to J&J because it had a bird-in-the-handversus-two-in-the-bush kind of concern[] and did not want to lose the licensing arrangement
- 14 KL3 3002155.1
that it already had with J&J. (Knopf Dep. 101:1-105:7). BSCs lead outside deal counsel, Clare
OBrien of Shearman & Sterling, also testified that BSC CFO Best told her that Abbott did not
want to have its involvement disclosed because it was concerned that being perceived as teaming
up with someone else might not be well received by J&J as Abbott already had a license
agreement with J&J for the Guidant DES product. (Tr. 267:23-268:6, 269:17-270:1, 296:19297:4 (OBrien)).
33.
On December 12, 2005, Skadden corporate associate Alison Rhoten
informed Kury that BSC was pushing to get confidentiality agreements signed up with potential
acquirors of the divested VI and ES businesses and inquiring whether this process [should] be
starting now, or is it more preferable to wait until [Guidant] has a signed agreement with [BSC]
before providing such competitively sensitive information to potential acquirors? (Kury Ex. 69,
at GDT 00346267). Skadden antitrust partner Stoll advised Kury that BSC can start negotiating
such agreements, however, due diligence will not begin until there is a definitive [stock purchase
agreement] btw [BSC] and [Guidant]. (Kury Ex. 68). Kury responded to Rhoten with a three
word e-mail: Defer for now. (Kury Ex. 69, at GDT 00346267; Tr. 1084:5-1086:1 (Kury)).
Rhoten replied To confirm, I will let Shearman know that we should wait to negotiate confis
with potential acquirors until after we have a signed merger agreement. (Id.).
34.
Stoll testified that he gave the foregoing advice to Kury for two reasons.
First, if ultimately there was going to be a buyer of such assets, that buyer would consider
information that was viewed by other parties as possibly diminishing the value of the business it
was ultimately acquiring because highly sensitive information, including IP, patent licensing, et
cetera, et cetera, would have been revealed to other parties. (Stoll Dep. 96:22-25, 98:22-99:6).
Second, [t]he FTC would not want essentially a carte blanche due diligence process where
- 15 KL3 3002155.1
companies that were, firms that were interested, not interested, just fishing for information, had
access to very sensitive information that ultimately would be acquired by another party because
that could have competitive effects that the FTC would prefer not occur. (Stoll Dep. 96:22-25,
98:14-21). Handwritten notes of Skadden antitrust associate Linda Cenedella reflect that Stoll
communicated this rationale to Kury, among others, during a December 14 conference call. (DX
218, at SA 00039977).
35.
On December 13, 2005, Guidants counsel at Skadden sent BSCs counsel
at Shearman a draft addendum to the BSC-GDT Confidentiality Agreement governing Guidants

provision of highly confidential information, including information relating to the assets to be
divested. (Stoll Ex. 12). Consistent with Skaddens earlier advice that diligence not be provided
to divestiture candidates before Guidant entered into a definitive merger agreement with BSC,
the addendum included a provision, added by a member of Skaddens corporate team, expressly
superseding the terms of the BSC-GDT Confidentiality Agreement stating: In no event shall
any Highly Confidential Material be provided or disclosed to third parties who are potential
purchasers of [Guidant] assets to be divested or any of such parties representatives without . . .
the prior express written consent of [Guidant]. (Id., at SA 00108437; John Aff. 11 (DX 165)).
36.
The following day, on December 14, 2005, Shearman sent Skadden a
revised draft of the Addendum by which it proposed adding a sentence providing that in no
event shall the existence or name of any third party who is a potential purchaser of the
Companys assets to be divested be disclosed by [Guidant] to any person without the prior
express written consent of Boston Scientific and such third party.
(Kury Ex. 18, at
GDT00133889; Tr. 268:11-269:16 (OBrien); Tr. 1278:12-1279:15 (John)). Handwritten notes

of Skadden associate Rhoten, dated December 14, indicate that Skadden had learned that BSC
- 16 KL3 3002155.1
deal counsel OBrien did not want Guidant to tell J&J the identity of potential acquirers of the
assets to be divested because she was afraid that J&J would queer the deal with BSC.
(Mulaney Ex. 7, at SA 00034206). In a draft of the Addendum sent by Skadden the following
day, Guidant sought to qualify Shearmans proposed language with the phrase except as
required by law or pre-existing agreements . . . . (Kury Ex. 19, at SS00131265; Tr. 1279:201280:6 (John)). Shearman responded by striking the words or pre-existing agreements. (Kury
Ex. 20, at SS 00131259; Tr. 1282:7-1282:15 (John)). Guidant accepted Shearmans change and,
on December 18, Kury and BSC GC Sandman executed a final version of the addendum (the
Addendum) in which Guidant agreed that except as required by law, in no event shall the
existence or name of any third party who is a potential purchaser of the Companys assets to be
divested be disclosed by the Company to any person without the prior express written consent of
Boston Scientific and such third party . . . . (Kury Ex. 21, at GDT 00133823; Tr. 1282:161282:19 (John)).
37.
On December 20, 2005, BSC Chairman Nicholas informed Guidant
Chairman Cornelius that BSC had elected to proceed with Abbott as the buyer of choice of the
assets to be divested. (Best Ex. 18). Nicholas sent an e-mail to Cornelius confirming that point
and informing him that [A]bbott desires to proceed with their own due-diligence of this unit
immediately, that Abbott will also need to . . . have full, open and complete access to all
information, and that it was imperative that you insist that the relevant [G]uidant personnel
cooperate fully with abbott so this due-diligence process can proceed successfully immediately.
(Id.). That same day, BSC CFO Best and BSC GC Knopf called Guidants GC for Vascular
Intervention John Lapke and made a fervent plea that Guidant begin providing diligence to an
unnamed third party with whom BSC was close to signing a deal for the purchase and sale of the
- 17 KL3 3002155.1
assets to be divested. (Knopf Dep. 139:11-141:12; PX 7). As Kury testified, this presented
Guidant with a concrete problem because Guidant had already agreed not to disclose the
identity of potential purchasers of the assets to be divested. (Tr. 1135:3-1135:23 (Kury)).
38.
Later on December 20, 2005 following up on Nicholas e-mail, Skadden
antitrust partner Stoll sent an e-mail to his corporate partners Mulaney and Duwe expressing a
need to understand the corporate ground rules regarding [Guidant] entering into a
[confidentiality agreement] with [Abbott], and to determine at what point we let [Abbott] and
other potential divestiture buyers begin VI/ES [due diligence] relative to negotiating and
finalizing the [stock purchase agreement] with [Boston Scientific].
(Duwe Ex. 5, at SA
00106838). In reply, Duwe sent Stoll an e-mail advising him that I would also have any
specific requests by [Abbott] for information, to the extent we can from an antitrust perspective,
come to us through [BSC] rather than having them send us written questions directly. (Id.).
39.
Later that day, after learning of the call made by Best and Knopf to
Guidant in-house counsel Lapke, Stoll sent an e-mail to Mulaney, Duwe and Kury complaining
that [t]his is getting out of hand and warning that [t]his is going too fast and is unnecessary.
(Kury Ex. 71, at GDT 00345417). Stoll testified that he believed the process was going too
fast because two conditions to providing diligence that he was insisting on had not been
fulfilled namely, the signing of an accession agreement and the importance of Guidant entering
into a definitive merger agreement with BSC before diligence was provided to divestiture
candidates. (Stoll Dep. 206:7-209:3). Stoll further testified that BSC was using its leverage of
having made a soft informal bid that topped J&Js offer to put pressure on Guidant to
essentially tell me to go find a hole to crawl into and let them get on with their deal . . . . (Stoll
Dep. 208:13-209:3). Stoll concluded his e-mail with a request that Kury, Mulaney and Duwe
- 18 KL3 3002155.1
consider my comment regarding the importance of having a deal with [BSC], prior to allowing
in depth third party [due diligence]. (Kury Ex. 71, at GDT 00345417).
40.
Later that evening Skadden associate Cenedella sent an e-mail to Kury,
Mulaney and Duwe, among others, attaching draft ground rules governing due diligence by
potential purchasers of the assets to be divested. (Id.). Among the proposed ground rules was a
requirement that All third-party buyers seeking to conduct DD regarding [Guidants] VI/ES
businesses are representatives of [BSC], and as such, must sign the Accession Agreement, a
form of which was appended to the Addendum.
(Id., at GDT 00345419).
The form of
Accession Agreement appended to the Addendum stated in part: The firms and/or individual
signatories hereto have been retained by Boston Scientific or Guidant, as the case may be, to
advise it in connection with a potential transaction and each such firm and/or signatory agrees to
be bound by the terms and conditions of the Addendum. (Kury Ex. 21, at GDT 00133826).
41.
On December 20, 2005, Deyo and J&J corporate attorney James Hilton
called Kury to remind him of Guidants obligations under 4.02(a). (Deyo Aff. 10 (PX 16)).
During that call, they specifically mentioned information about Guidants DES program and
Everolimus, the drug used in Guidants DES, as J&J had not received diligence from Guidant
with respect to those matters because of antitrust concerns. (Id.). Kury assured Deyo and Hilton
that Guidant would comply, although he indicated that disclosure of any such materials to BSC
would likely be limited to clean teams that is, employees not directly involved in the relevant
businesses at BSC and that J&J would be similarly limited. (Id.). Kury said nothing to Deyo
and Hilton about Guidant making such materials available to Abbott, or even generally to parties
interested in purchasing assets to be divested by BSC. (Id.).
- 19 KL3 3002155.1
42.
The next day, December 21, 2005, Guidant in-house counsel Lapke sent
an e-mail to Kury informing him that he had received a complaint from Abbotts in-house
counsel concerning restrictions that Skadden had imposed on who could see Guidants DES
information. (John Ex. 21, at GDT 00352064). Kury replied via e-mail to Lapke and Stoll,
copying John Capek, President of Advanced Cardiovascular Systems (ACS), Guidants VI
business, stating [w]e are under tremendous pressure from BS[C] to accommodate [Abbott] so
lets do what we can without violating the AT constraints (reasonably interpreted) or otherwise
shooting ourselves in the foot. (Id., at GDT 00352063). Kury confirmed in his testimony that
Abbott was extremely anxious to get due diligence and that BSC was applying a lot of pressure
on him to make that happen. (Tr. 1093:14-1093:21 (Kury)). Kury later sent an e-mail to Capek
explaining that: [m]y messages are aimed at others and creating a record that I am kicking butt
as [BSC Chairman] pete nicholas demanded. (John Ex. 21, at GDT 00352063). Stoll indicated
that he understood Kurys comments to be directed to him and that Kury was under a lot of
pressure. (Stoll Dep. 218:17-219:2).
43.
That evening, Lapke and the parties respective outside counsel had a long
call to discuss due diligence issues. (John Ex. 20). After that call, Skadden antitrust counsel
John sent an e-mail to Kury, copying Stoll, in which he informed Kury that, among other things,
Abbott had asked to have access to any relevant intellectual property licensing agreements and
that [Abbott] called having this access critical and said if they were not given this access they
would walk from the deal. (Id., at GDT 00345049). John confirmed in his testimony that
Abbott threatened that if it did not receive due diligence it would walk away from the
transaction. (Tr. 1292:7-1294:4 (John)).
- 20 KL3 3002155.1
44.
That same day, December 21, 2005, after Kury confirmed that the
proposed ground rules were okay with him, John sent BSCs outside antitrust counsel,
Deborah Feinstein of Arnold & Porter LLP (A&P), ground rules governing the provision of
due diligence to potential buyers of the assets to be divested. (Kury Ex. 30; DX 58). The ground
rules, like the draft previously circulated by Stoll, specified that any such buyers are
representatives of Boston Scientific, and as such, must sign the Accession Agreement. (Kury
Ex. 30, at BSC 00108502). In his cover e-mail, John stated that before we can engage in
discussions with [Abbott] (or any other third party) or give [Abbott] access to the data room (or
even the data room index), [Abbott] needs to sign the Accession Agreement to the Addendum
and that [a]ll communications relating to the third party diligence should come through [BSC]
or its advisors. (Id., at BSC 00108499).
45.
In his December 21, 2005, e-mail to Kury reporting on his call with
Abbotts counsel, John informed Kury that [Abbott] is resisting signing the Accession
[A]greement, and in fact has refused to sign it unless the Addendum is modified (which we said
we cant do for contract privity issues). (John Ex. 20, at GDT 00345049). Abbott in-house
counsel Laura Gunther testified that she objected to the representation in the form Accession
Agreement that the signatory had been retained by Boston Scientific to advise it in connection
with the potential transaction, and that she proposed alternative language. (Gunther Dep. 110:3110:16, 112:14-114:1). As Gunther testified, John told her very firmly that the language needed
to be there and that that was not something that was open to negotiation. (Id., at 113:18-114:1).
46.
On the morning of December 22, 2005, John sent an e-mail to Kury
suggesting two alternative courses of action: to wait for Abbott to send a version of the
Accession Agreement that was acceptable to Abbott, or to provide information under a cover
- 21 KL3 3002155.1
letter setting forth an understanding that the materials would be used only in a manner acceptable
under the antitrust laws. (DX 60). The letter did not describe Abbott as having been retained to
advise BSC.
(Id.).
John testified that the letter was acceptable to him from an antitrust
perspective and that there was no antitrust reason to characterize Abbott as being retained to
advise BSC. (Tr. 1365:14-1366:25 (John)). At Kurys request, John followed-up with Gunther
to find out when a redraft of the Accession Agreement was coming. (DX 59, at GDT 00395120).
That afternoon, Abbott sent Guidant a draft Accession Agreement that included the
representation, earlier insisted upon by John, that Abbott had been been retained by Boston
Scientific . . . to advise it in connection with a potential transaction . . . . (John Ex. 10, at
STB00001843).
47.
Development
Later that day, Kury and Abbotts Vice President of New Business
Murphy
signed
the
Accession
Agreement
representing
that
Abbott
Laboratories . . . has been retained by Boston Scientific to advise it in connection with a potential
transaction. (PX 10; John Ex. 15). John forwarded a copy of the signed agreement to OBrien.
(PX 10). That same afternoon, Capek, President of Guidants ACS subsidiary, gave an overview
presentation to Abbotts leadership team. (Kury Ex. 72; Stoll Ex. 22). The following day,
Guidant placed in a data room hosted by Skadden at its Chicago offices the intellectual property
license and related agreements that Abbott had demanded the previous day. (John Ex. 20).
48.
On December 23, 2005, OBrien sent an e-mail to John responding to his
e-mail transmitting the Accession Agreement signed by Abbott and Guidant. OBrien stated:
Ian, I would not characterize Abbott as having been retained by Boston Scientific to advise it
in connection with a potential transaction. I would say In connection with Boston Scientifics
consideration of a potential transaction with Guidant, Abbott is considering the possible
- 22 KL3 3002155.1
acquisition of certain assets of Guidant. (Duwe Ex. 9, at SA 00106738; Tr. 271:13-272:25

(OBrien)). John forwarded OBriens e-mail to Duwe and Rhoten, asking that they work this
issue with Clare and Simpson [Thacher, Abbotts outside counsel] (if necessary)? I am not really
sure how to address it at this point. (Duwe Ex. 9, at SA 00106738). John testified that he
forwarded the e-mail to Duwe because the representation that Abbott was retained to advise BSC
was not fundamental from an antitrust perspective and if, from a corporate perspective, Duwe
wanted to further negotiate the agreement, it was up to him. (Tr. 1311:15-1312:23 (John)). That
evening, BSC GC Knopf sent an e-mail to John and Rhoten stating [a]ttached is a copy of the
Accession Agreement with respect to Abbott executed by me on behalf of Boston Scientific.
Please understand that Abbott is a potential acquirer of certain assets of Guidant. (Knopf Ex.
34, at BSC 00127640).
49.
On December 27, 2005, Abbott sent representatives to tour Guidants
facilities in Santa Clara, California. (Kury Ex. 72). In connection with that visit, Guidant
furnished Abbott with additional due diligence related to Guidants VI business. (Stoll Ex. 24).
Three days later, on December 30, Skadden sent copies of these materials to J&Js outside
counsel, Cravath Swaine & Moore (Cravath) under a cover letter stating that [t]hese materials
have been provided to Boston Scientific or their advisors in connection with their diligence
review. (John Ex. 31; Tr. 1317:5-1318:25 (John)).
50.
On
the
following
day,
December
31,
2005,
Kury
sent
an
e-mail to Deyo purporting to update him on the status of Guidants discussions with BSC. (Kury
Ex. 36).
Kury represented that [w]e are continuing to provide [BSC] with information
regarding Guidant as permitted by our November 14 merger agreement. As you know, in

circumstances where we have provided information that was not previously provided to J&J, we
- 23 KL3 3002155.1
have provided you with copies or otherwise made the information available to you on the same
basis as we have to Boston Scientific. (Id., at GDT 00136032). Kury also attached a draft
merger agreement between Guidant and BSC. (Kury Ex. 36). But Kury did not mention to Deyo
that Guidant was also providing diligence to Abbott, or more specifically that the materials that
Skadden had sent to Cravath the day before had been provided to Abbott and not, as stated in the
December 30 letter, to Boston Scientific or its advisors. (Id.; Deyo 11 (PX 16)).
51.
Several days later, Deyo called Kury to inquire whether he had any
additional information about the terms of the divestiture contemplated in 5.03 of the draft
merger agreement between BSC and Guidant, which Kury had sent to him on December 31,
2005. (Tr. 1149:4-1150:7 (Kury); Stoll Ex. 19). Kury suggested that Deyo should have J&Js
attorneys call Stoll or John at Skadden, and forwarded Deyos inquiry to them. (Stoll Ex. 19).
Unbeknownst to J&J, Guidant, BSC and Abbott had earlier entered into an oral joint defense
agreement related to antitrust issues and efforts to obtain regulatory approval for the transaction.
(Stoll Dep. 44:9-45:5, 63:2-64:2). Based on the oral joint defense agreement between BSC and
Guidant, in reply to Kurys e-mail, John told Kury that the only information that he and Stoll
knew about the potential divestiture transaction had been learned in privileged conversations.
(Stoll Ex. 19; Tr. 1330:11-1331:14 (John)). Kury instructed John to discuss the issue with
Mulaney. (Id.; Tr. 1331:15-1331:17 (John)). Subsequently John told Kury that if called, he and
Stoll would say that they knew nothing more than what had been publicly disclosed. (Stoll Ex.
19).
52.
On January 6, 2006, Deyo received an e-mail from Medtronic GC Terry
Carlson letting Deyo know that Medtronic would be interested in replacing Abbott if Abbott
dropped out of J&Js deal. (Deyo Ex. 21). Based on that communication, J&J understood that
- 24 KL3 3002155.1
Medtronic was not BSCs divestiture partner. (Tr. 135:14-136:13 (Deyo)). That same day, J&J
in-house counsel James Hilton and Eric Harris called Stoll and inquired about, among other
things, the divestiture contemplated by 5.03 of the draft BSC-GDT merger agreement that
Kury had sent to Deyo on December 31. (Harris Ex. 12). Consistent with what John previously
told Kury they planned to do in the event J&J called, Stoll simply walked Hilton and Harris
through the contractual language. (Harris Ex. 12; John Aff. 26 (DX 165); Tr. 1319:18-1321:24
(John)). When Hilton hypothesized that Abbott was the divestiture buyer, Stoll neither confirmed
nor denied his speculation. (Harris Ex. 12; Tr. 1319:18-1321:24, 1332:11-1332:22 (John)).
The J&J-GDT Co-Promotion Agreement
53.
Among the materials to which Abbott requested access was a Co-
Promotion Agreement between J&J subsidiary Cordis Corporation (Cordis) and Guidant
subsidiary ACS (the Co-Promotion Agreement). (John Ex. 20, at GDT 003450418). Under
that agreement, Cordis paid ACS a commission to promote J&Js DES, Cypher. (John Ex. 23, at
SS 00019759). Abbott estimated that under this agreement ACS earned approximately $98
million in 2004 and $125 million in 2005.
(Gunther Ex. 37, at ABT00000023).
In a
memorandum to Abbotts Board of Directors, Abbott CEO Miles White identified the CoPromotion Agreement to be among the key agreements that must be reviewed with acceptable
outcomes (Id., at ABT00000016), and as to which Abbott threatened to walk from the deal if
it was not given access. (John Ex. 20, at GDT 00345049).
54.
Both John and Guidants Chief Information Officer (CIO) William
McConnell told Kury that the Co-Promotion Agreement included confidentiality provisions
restricting its disclosure to third parties. On December 22, 2005, John wrote an e-mail to Kury,
copying Stoll, stating in part that [w]e continue to need to consider . . . the confidentiality
clauses in the license and related agreements, in particular the limitations imposed by the [J&J]
- 25 KL3 3002155.1
agreements. (John Ex. 13). The following day, December 23, Guidant placed a copy of the CoPromotion Agreement in a data room to which Abbott was given access, but withheld a schedule
to the agreement that identified parties to whom ACS could not be sold without triggering a
provision entitling J&J to terminate the agreement. (John Ex. 20, at GDT 00345048; Stoll Ex.
25). Later that same day, McConnell sent Kury an e-mail informing him that Abbott wanted to
have access to the schedule to see whether J&J could terminate the agreement if ACS was sold to
BSC or Abbott. (John Ex. 25). In that e-mail, McConnell also told Kury that there is a
confidentiality protection that prevents us from giving them the schedule but we need to find a
way to let [Abbott] know they are on the schedule . . . . (Id.). McConnell then inquired Ca[n]
we just tell them or ca[n] our at[t]orneys tell their attorneys that they are listed? (Id.).
55.
Kury forwarded McConnells e-mail to Duwe with ?? as the sole text.
(PX 9). Duwe responded shortly thereafter stating that we have informed their counsel that
ABT is on the schedule. The confi provisions of the copromote are more general and do not
expressly apply to the terms of the agreement or schedules. (Id., at GDT 00345018). Contrary
to Duwes advice, Confidential Information was defined in the Co-Promotion Agreement to
include the material terms of this Agreement . . . . (John Ex. 23, at SS 00019753). The
agreement further provided that the parties to the agreement shall not communicate any portion
of the Confidential Information of the other Party or its Affiliates to any other person, firm,
corporation or entity without first obtaining prior written permission from the other Party. (Id.
at SS 00019770).
56.
During the January 6, 2006 telephone call between J&J in-house counsel
Hilton and Harris and Skadden partner Stoll, Hilton and Harris asked if there had been any
discussion of divesting the Co-Promotion Agreement.
- 26 KL3 3002155.1
(Harris Ex. 12; Tr. 1319:18-1322:4
(John)). Although there clearly had been, Stoll replied not to his knowledge. (Harris Ex. 12;
Tr. 1322:5-1322:13 (John); John Ex. 20).
BSC Makes a Definitive Offer and J&J Discovers Guidants Breach
57.
On January 8, 2006, BSC and Abbott signed an agreement whereby
Abbott agreed to purchase Guidants VI and ES businesses in the event that BSC acquired
Guidant (the BSC-ABT Transaction Agreement). (Kury Ex. 39). That same day, BSC made a
definitive offer to acquire Guidant for $72 per share. (Kury Ex. 38). BSC transmitted its offer to
Guidant via e-mail stating: On behalf of Boston Scientific, please find attached Boston
Scientifics definitive offer for Guidant. (Id., at GDT 00101126). The offer consisted of a bid
letter from BSC Chairman Nicholas to Guidant Chairman Cornelius and a proposed merger
agreement between BSC and Guidant. (Id.). BSC deal counsel Shearman separately sent the
BSC-Abbott Transaction Agreement to Guidant via e-mail stating that they were sending the
attached Transaction Agreement to you solely to facilitate your review of Boston Scientifics
offer. (Kury Ex. 39, at GDT 00133405). Knopf testified that BSC did not include the BSCAbbott Transaction Agreement with its proposal because it did not view it to be relevant to
BSCs offer. (Knopf Dep. 207:24-208:18).
58.
The BSC-ABT Transaction Agreement was essential to BSCs decision to
move forward from its tentative proposal on December 5, 2005 to its definitive offer on January
8, 2006. Best acknowledged that BSC could have said in its January 8 definitive offer that it
would divest whatever assets BSC was required to divest by the FTC without having somebody
lined up to purchase those assets. (Best Dep. 33:17-33:23). But he acknowledged that BSC was
not prepared to take that risk. As Best emphatically explained: For our board to accept going
forward For our board to accept going forward, we had to have a committed sign-on-the-dotted
line partner. (Best Dep. 94:5-94:21).
- 27 KL3 3002155.1
59.
BSCs definitive offer was the subject of a January 9, 2006 call with
analysts. During that call, Best reiterated that there was no financing contingency because BSC
hold[s] commitment letters from Banc of America, Merrill Lynch for all the financing we need
to consummate this transaction. (Best Ex. 31, at BS0010594). At Guidants insistence, BSC
represented and warranted in its proposed merger agreement, transmitted with its January 9 offer,
that the committed financing being provided by BofA and Merrill, along with BSCs cash on
hand, were sufficient to fully fund the Cash Portion of the Merger Consideration. (Tr. 1186:71187:4 (Kury); Kury Ex. 38, at GDT 00101167; Kury Ex. 42, at GDT 00138345).
60.
At some point during the January 9, 2006 conference call, Best was asked
if there was a contingency for Abbott if certain clinical trial data proved disappointing. Best
responded that Abbott had already been given the opportunity to do a much deeper dive on due
diligence, and that Abbott was very impressed with the data and what they found, and that is
how they came up with the valuation and decision to move forward.
(Best Ex. 31, at
BS0010601). Best confirmed the truth of that statement at deposition. (Best Dep. 174:4-176:2).
61.
Based on Bests statement during the January 9, 2006 conference call, J&J
concluded that at some time between BSCs tentative proposal on December 5, 2005, and BSCs
submission of a definitive offer on January 8, 2006, Guidant appeared to have breached the terms
of the Merger Agreement by providing Abbott with due diligence. (Deyo Aff. 12-13 (PX
16)). On that same day, Deyo and Hilton telephoned Kury to notify Guidant of J&Js concern.
Kury was told that given what Best had said on the conference call, J&J believed that Guidant
had breached or violated the Merger Agreement, and asked for an explanation from Kury.
(Deyo Aff 13 (PX 16); Tr. 168:14-169:8 (Deyo)).
Kury expressed dismay and gave no
explanation, but promised to get back to them. (Deyo Aff. 13 (PX 16); Tr. 169:24-170:15
- 28 KL3 3002155.1
(Deyo); see also Hilton Dep. 219:8-225:10). During that call, Deyo also requested that Guidant
provide J&J with any information that it had previously given to Abbott. (Deyo Aff. 14 (PX
16); see also Hilton Dep. 219:25-220:14). That evening, at Kurys request, Skadden associate
Rhoten sent an e-mail to Deyo, Hilton and Cravath corporate partner Robert Townsend
informing them that [c]opies of additional documents reviewed by the parties were being sent
by Federal Express. (Kury Ex. 83, at GDT 00350438). The next day, J&J and Cravath received
boxes of confidential Guidant documents, some of which had previously been provided to
Abbott. (Deyo Aff. 14 (PX 16); Tr. 127:18-127:24 (Deyo)).
The Bidding War
62.
After BSC made its definitive offer on January 8, 2006, J&Js Board of
Directors, in a meeting on January 10, authorized J&J CEO Weldon to increase J&Js offer to
$71 per share. (Weldon Aff. 5 (PX 21); Hilton Ex. 21, at JJH00111609). At that meeting,
J&Js lead investment banker, Kenneth Hitchner of The Goldman Sachs Group, Inc.
(Goldman), presented a fairness opinion indicating that Goldman had concluded that the
break-even price of the transaction, meaning the price at which the amount paid is equal to the
value received, was $74.01 per share excluding any defensive value, that is, the value of
preventing BSC from acquiring Guidant, and $77.50 per share including defensive value.
(Hitchner Ex. 11, at GG-JJ_017179).
63.
J&J increased its offer in two steps. First, on January 11, 2006, it sent a
letter to Guidant, along with an executed amendment to the Merger Agreement, increasing J&Js
offer to $68 per share. (Weldon Aff. 6 (PX 21); Kury Ex. 43). When BSC subsequently
increased its offer to $73 per share on January 12, J&J sent another letter, on January 13,
increasing its offer to $71 per share. (Weldon Aff. 6 (PX 21); Kury Ex. 47). At that price, J&J
estimated that the transaction would have a net present value to J&J of $2.0 billion. (Korbich
- 29 KL3 3002155.1
Ex. 28, at GG-JJ_018855). This represented a reduction of $3.1 billion from the estimated fair
market value of the transaction at the contracted-for price of $63 per share i.e., $5.1 billion.
(Id.).
64.
J&J CEO Weldon was aware that BSC might top this bid as well and was
prepared to make an offer as high as $75 per share, or even $76 per share if necessary. (Weldon
Aff. 7 (PX 21)).
Weldon discussed this with Goldmans Hitchner, who confirmed that
Goldmans fairness committee was comfortable with a bid up to $75 per share. (Id.; Hitchner
Dep. 143:12-146:16).
J&J management prepared a draft PowerPoint presentation for an
upcoming January 18 meeting of J&Js Board of Directors to support a request by Weldon for
authorization to make an offer of $75 per share. (Weldon Aff. 7 (PX 21); Korbich Ex. 28, at
GG-JJ_018849).7 On January 17, however, BSC increased its offer to $80 per share, which
Guidants Board determined was a Superior Proposal. (Kury Ex. 49).
65.
BSCs $80.00 per share bid was supported by two independent fairness
opinions issued by both of its financial advisors, Merrill and Bear Stearns Companies, Inc. Bear
Stearns). (Hartman Ex. 01/ML; Bicknese Ex. 01/BS; Tr. 430:16-431:17 (Bicknese)). BSCs
bankers, Robert Bicknese and Alan Hartman from Bear Stearns and Merrill, respectively,
testified that they believe $80.00 represented a fair price for Guidant.
(Bicknese); Tr. 583:4-584:18 (Hartman)).
(Tr. 447:6-447:11
Hartman testified that he never felt pressure to
overstate the value of Guidant. (Tr. 514:17-514:20 (Hartman)). Bicknese testified that Bear
Stearns would have tested any data relied upon to issue the fairness opinion to make sure those
data points were reasonable. (Tr. 441:9-442:16, 471:17-472:5 (Bicknese)). Similarly, Hartman
Guidant notes that Korbich Ex. 28 is a draft slide presentation to be made to J&Js Board
of Directors. (Tr. 389:12-390:4 (Jarrell)). John Papa, J&Js Treasurer, is on the document and
there is no reason to think that the n.p.v. calculations contained in the document are unreliable.
- 30 KL3 3002155.1
believed that the projections provided by BSCs management were their best estimate of their
view of the company and agreed that Merrills Fairness Committee would want to be sure that
the projections provided to them by BSC were reasonable. (Tr. 585:17-586:10 (Hartman)). Both
Bicknese and Hartman testified that they were aware of the challenges Guidant faced with regard
to its CRM business and any projections and/or valuations regarding Guidant would have taken
these issues into account. (Tr. 474:4-475:18 (Bicknese); Tr. 586:11-587:17 (Hartman)).
66.
After BSCs $80 per share bid, Goldmans Hitchner testified that he spoke
to Robert Huffines, a banker with Guidants financial advisor JP Morgan, to see whether a $75
per share bid by J&J would be competitive and received a cold shoulder. (Hitchner Dep. 153:7154:4). Weldon also spoke to Guidant Chairman Cornelius, who told him that Guidants Board
had no interest in hearing about bids from J&J that were nominally lower than BSCs. (Weldon
Aff. 7 (PX 21); Hitchner Dep. 153:7-154:4). At that point it became clear to Weldon that $75
per share, the most that J&J was prepared to offer, would not be sufficient. (Weldon Aff. 7
(PX 21)).
Accordingly, at the January 18 meeting of J&Js Board of Directors, Weldon
recommended to the Board that J&J not increase its offer. (Id.; Deyo Ex. 29).
FTC Review
67.
Throughout the diligence period in December 2005 and the bidding war in
January 2006, Guidant coordinated with BSC and Abbott to enhance BSCs ability to get speedy
antitrust approval of its proposed acquisition of Guidant. Guidant and BSC entered into an oral
joint defense agreement on December 9, 2005, which was joined by Abbott when it signed the
Accession Agreement on December 22. (Stoll Dep. 44:9-45:5). Skadden antitrust partner Stoll
testified that the parties common interest underlying that agreement was achieving regulatory
approval of Abbott as a divestiture buyer in connection with BSCs proposal. (Stoll Dep. 63:1764:2). Once Abbott joined, Skadden began having discussions with Abbott and Abbotts outside
- 31 KL3 3002155.1
counsel at Simpson Thacher about how they planned to obtain FTC approval. (Stoll Dep. 64:364:13). Skadden antitrust counsel John testified that the purpose of such agreements is, in part,
to enable the parties to discuss what arguments they want to bring to bear in seeking FTC
approval without fear of having those discussions subject to disclosure. (Tr. 1371:22-1372:12
(John)).
68.
Speed and certainty of gaining regulatory approval of a potential
transaction with BSC were critically important to Guidant. (Tr. 1214:12-1215:1 (Kury)). BSC
understood that to have its proposal taken seriously by Guidants Board it needed to be able to
commit to a clean and clear antitrust path. (Knopf Ex. 6, at SS 00157868; Knopf Dep. 41:1543:3). BSC thought that J&J had an advantage because J&J had an existing agreement that
already received FTC approval, after many months of negotiations, and trying to bid against that
would be difficult from a shareholder perspective because of the uncertainty of having to wait
potentially many more months until a deal could be consummated. (Knopf Dep. 41:15-43:3).
69.
On January 9, 2006, after BSC made its definitive offer, Guidant
Chairman Cornelius advised the members of Guidants Board that its lawyers at Skadden were
analyzing the proposed merger agreement between BSC and Guidant particularly the key
section on antitrust divestitures, noting that BSC had a side agreement to sell our vascular
intervention and endovascular business units to Abbott for $4.3 billion. (Kury Ex. 41, at GDT
00293690). At a meeting of Guidants Board of Directors the following day, Stoll advised the
Board that there could be antitrust issues with BSCs definitive offer and that if there were, the
FTC investigation could take a long time to complete. (Stoll Dep. 254:25-255:15). Stolls
concern related to a proviso in 5.03 of the proposed BSC agreement, generally requiring BSC
to use its reasonable best efforts to ensure that the Merger . . . be consummated as promptly as
- 32 KL3 3002155.1
practicable, and to agree to Divestitures to one or more purchasers . . . of such assets . . . that
currently constitute: (a) the vascular intervention and endovascular business of [Guidant].
(Kury Ex. 38, at GDT 00101181-82). The proviso contained an exception to that commitment
stating [BSC] shall not be required to agree to any Divestiture of the vascular intervention and
endovascular business of [Guidant] that does not allow [BSC] to obtain . . . non-exclusive rights
to [Guidants] intellectual property . . . that is used in [Guidants] drug eluting stent system
program. (Id., at GDT 00101182).
70.
On January 11, 2006, John spoke to BSCs outside antitrust counsel
Feinstein, who reported that she had received general positive feedback from [the FTC] staff
[with respect to Abbott] as a purchaser and positive feedback concerning other issues.
(Feinstein Ex. 19). On that day, John e-mailed a package of documents to the FTC concerning
Guidants carotid artery stent business and its ES business and followed up the next day with
documents relating to Guidants investment in a company called Interventional Rhythm
Management, Inc. (John Exs. 38, 39; Tr. 1332:6-1335:12 (John)). Both sets of material were
characterized as highly confidential business information and were provided voluntarily. (Id.;
Id.; Tr. 1332:23-1332:25 (John)).
John informed Kury that Skadden was furnishing the
information to the FTC. (John Ex. 41; Tr. 1334:11-1335:12 (John)). John also advised Kury that
agreeing to a request from the FTC that Guidant consent to having its information shared with
foreign regulators would speed up the FTCs review of the transaction, and based on that advice
obtained Kurys authorization to agree to the FTCs request. (John Ex. 41; Tr. 1334:11-1335:12
(John)).
71.
On January 12, 2006, BSC made a revised definitive offer to Guidant for
$73 per share, in which it had removed the objectionable proviso from 5.03. (Kury Ex. 45, at
- 33 KL3 3002155.1
SS 00078809). In his letter transmitting the revised offer, BSC Chairman Nicholas highlighted
this change, stating that BSC had revised Section 5.03 of the merger agreement in order to
address all of the antitrust concerns that have been articulated to us. (Id., at SS 00078670).
According to BSC CFO Best, BSC removed the proviso from the 5.03 clause because by that
point it had enough discussion with the FTC that it was comfortable that the FTC would approve
a deal where BSC would get to share Guidants DES business. (Best Dep. 179:3-181:9).
72.
In a January 17, 2006 letter to Guidants Board, submitted in connection
with BSCs revised $80 per share offer, BSCs lead outside antitrust counsel, Michael Sohn of
A&P, highlighted the importance of the BSC-ABT Transaction Agreement to obtaining
assurances that the FTC would approve BSCs proposed transaction, stating:
We have been engaged in extensive discussions with the FTC staff
since the date BSC transmitted its initial proposal to you. The FTC
staff showed itself to be quite knowledgeable about the businesses
involved, willing to investigate our proposed transaction even in
advance of an HSR filing, and has at all times been cooperative in
reviewing material promptly and providing us with feedback
concerning their views. In our first discussion, we advised the
FTC of our clients commitment to facilitate a third party
acquisition of Guidants vascular intervention and endovascular
businesses. In that regard, we promptly provided the Commission
with BSCs agreement with Abbott Laboratories once that was
available. Accordingly, the months and months that can be spent
identifying overlaps of concern, agreeing upon what assets must be
divested, and then finding a buyer for those assets has been shortcircuited here because of BSCs sensitivity to your timing
concerns.
*
In short, we believe we are already at the stage it takes most parties

three or four months or more to reach. We have an agreed upon
divestiture, an agreed upon buyer and an agreed upon package of
assets to be divested. All that remains are resolution of a few items
of secondary or tertiary level, drafting of a consent decree to be
presented to the Commission, and Commission approval. Given
BSCs willingness to divest all overlapping products and to pay
significant interest to Guidants shareholders if the proposed
- 34 KL3 3002155.1
transaction is not closed by the end of March, there is little

question that BSC is incentivized to complete the few remaining
steps as expeditiously as possible.
(Kury Ex. 49, at GDT 00226195-97). Kury confirmed that the fact that there was an agreement
in place between BSC and Abbott provided considerable comfort to Guidant as to BSCs ability
to obtain prompt antitrust approval. (Tr. 1214:12-1215:1 (Kury)).
Guidant Terminates the Merger Agreement
73.
Throughout the time when J&J and BSC were bidding on Guidant,
Guidant GC Kury failed to respond to J&J GC Deyos request in their January 9, 2006 call to
explain the basis on which Guidant claimed entitlement to furnish information to Abbott. (Deyo
Aff. 15 (PX 16)). Kury later claimed he had no recollection of Deyo asserting during that call
that providing due diligence to Abbott was a breach; he does not suggest it did not happen, only
that he did not recall that part of the conversation or that it was not the message I took away
from the conversation. (Tr. 1159:9-1160:8 (Kury)).
74.
In any event, on January 23, 2006, Deyo sent a letter to Kury following up
on their January 9 conversation. (Deyo Aff. 15 (PX 16); Kury Ex. 50). In that letter Deyo
asked that Kury get back to him as soon as possible regarding Guidants explanation of the
circumstances relating to, and the rationale behind, the disclosure of the Guidant business
information to Abbott, and, in particular, Guidants view on how this disclosure could possibly
have been consistent with the terms of the No Solicitation clause of the Agreement. (Kury Ex.
50). Later that day, Mulaney prepared a draft response for Kury to send to Deyo. (Mulaney Ex.
25). The draft response stated, among other things, Nothing in the no solicitation provisions
prevents a party making a Takeover Proposal from seeking to finance the Takeover Proposal
in part by a divestiture or attempting to address regulatory concerns by arranging in advance for
- 35 KL3 3002155.1
a divestiture. (Id., at GDT 00368734). In addition, a Takeover Proposal may be made by one
person or a number of joint bidders. (Id.). The draft also referred to the fact that Abbott had
agreed to make a subordinated loan and purchase BSC stock (id.), neither of which Guidant or
Skadden was aware of at the time diligence was provided to Abbott.
(Tr. 838:4-838:23
(Mulaney); Tr. 1180:17-1181:2 (Kury)).

75.
After receiving Mulaneys draft, Kury sent an e-mail to Mulaney and
Duwe asking: But seriously folks, what is the technical analysis of whether [Abbott] is a
bidder? (Kury Ex. 57). Shortly thereafter, Kury sent an e-mail to Deyo that was substantively
identical to the draft that Mulaney prepared, making no changes to the rationales for having
provided diligence to Abbott. (Kury Ex. 51). In another e-mail that same day to Mulaney and
Duwe, Kury characterized the assertions made by Deyo in his letter as being lame. (Kury Ex.
83). The following day, Duwe sent copies of Deyos letter and Kurys response to BSC outside
counsel at Shearman, OBrien, who forwarded them to BSC GC Sandman and BSC in-house
counsel Knopf. (OBrien Ex. 13).
76.
On January 24, 2006, J&J Deyo sent a second letter to Kury. (Kury Ex.
52). In that letter, Deyo stated, I do not see Abbott Laboratories (Abbott) as a joint bidder
with Boston Scientific Corporation (Boston Scientific), but rather as a party agreeing to a
divestiture. Our Agreement is clear. The Agreement permits due diligence information to be
provided only to the person making the Takeover Proposal and its representatives Abbott is
neither. Abbotts provision of a subordinated loan to Boston Scientific does not change Abbotts
position as a third-party divestiture recipient, nor does it change the context in which Abbott was
provided information. (Id. at GDT 0002674). Deyo concluded his letter by inviting Kury to
respond: In short, I am perplexed by what we are hearing and, once again, would welcome
- 36 KL3 3002155.1
whatever further information you can offer to address the above. (Id.). Kury never responded.
(Deyo Aff. 16 (PX 16)). Kury acknowledged having admitted at deposition that he understood
that Deyo was asserting in his letters that Guidant had breached the Merger Agreement. (Tr.
1165:10-1166:17, 1215:13-1215:15 (Kury)).
Mulaney similarly admitted that he prepared
Kurys January 23 e-mail to respond to Deyos allegation that we had somehow violated the
first part of 4.02(a). (Tr. 919:2-919:11 (Kury)). Mulaneys admission is corroborated by his
handwritten notes on a January 24 Board presentation that Skadden gave to Guidant and on
which Mulaney noted, J&J letter suggesting No solicit violated. (Mulaney Ex. 27, at SA
00038833).
77.
On January 25, 2006, Guidant announced that it was terminating the
Merger Agreement with J&J and entering into an acquisition agreement with BSC for $27
billion. (Kury Ex. 53; DX 11). The following day, Guidant wired J&J a termination fee, now
$705 million in view of the increased purchase price of J&Js last bid. (Stip. 46). On March 31
shareholders of BSC and Guidant approved the merger of the two companies. (PX 27). Neither
Guidant nor BSC disclosed in their joint proxy statement soliciting shareholder approval of a
merger between the two companies that J&J had alleged that Guidant had breached the Merger
Agreement. (Kury Ex. 48).
78.
On August 14, 2006, J&Js Executive Committee authorized counsel to
bring the present lawsuit. (Deyo Aff. 18 (PX 16)).

CONCLUSIONS OF LAW
79.
J&J alleges a single claim for breach of contract against Guidant. Guidant
in turn alleges a contingent counterclaim against J&J seeking to set off the $705 million
termination fee against any damages award. To prevail on their respective claims, each party
bears the burden of presenting evidence in support of their allegations by a preponderance of the
- 37 KL3 3002155.1
evidence. McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d 1544, 1548-49 (2d Cir.
1991). The burden of showing something by a preponderance of evidence . . . simply requires
the trier of fact to believe that the existence of a fact is more probable than its nonexistence.
Metro. Stevedore Co. v. Rambo, 521 U.S. 121, 137 n.9 (1997) (citation omitted). As the finder
of fact, the Court is entitled to make credibility findings of the witnesses and testimony.
A.
80.
Jurisdiction
The Court has diversity jurisdiction over the subject matter of this case
pursuant to 28 U.S.C. 1332 because it arises between citizens of different states and the amount
in controversy exceeds the sum or value of $75,000. The Court has jurisdiction over the parties,
each of which is a corporation doing business in the State of New York. Venue in the Southern
District of New York is proper under 28 U.S.C. 1391.
B.
81.
Breach of Contract
Under Indiana law, which the parties chose as the governing law in 8.08
of the Merger Agreement, the elements of a breach of contract action are the existence of a
contract, the defendants breach of that contract, and damages. Niezer v. Todd Realty, Inc., 913
N.E.2d 211, 215 (Ind. Ct. App. 2010) (citation omitted). In addition, under 7.02 of the Merger
Agreement, J&J may recover damages in excess of the termination fee only if it demonstrates
that Guidants breach was both wilful and material.8 Guidant does not deny the existence of
an enforceable contract. (Stip. 52).
82.
As discussed below, J&J has presented sufficient evidence to establish the
remaining elements of its claim and entitlement to damages in excess of the termination fee.
There are two accepted spellings of willful. This opinion uses willful except when
quoting the Agreement, which uses wilful, or a court case using the alternate spelling.
- 38 -
KL3 3002155.1
1.
83.
Breach
J&Js principal claim is that Guidant breached 4.02(a) of the Merger
Agreement when, between December 22, 2005 and January 8, 2006, Guidant furnished
information about itself to Abbott in order to facilitate BSCs tentative proposal. J&J also
alleges several other breaches of 4.02(a), as well as 4.02(b) and 4.02(c). The Court
addresses each below.
a.
84.
Section 4.02(a)
As more fully described earlier, 4.02(a) provided that neither Guidant
nor its Representatives were permitted to solicit, initiate or knowingly encourage, or take any
other action designed to, or which could reasonably be expected to, facilitate, any Takeover
Proposal, except that, in response to a qualified Takeover Proposal, Guidant was only permitted
to (i) furnish information with respect to the Company and its Subsidiaries to the person making
such Takeover Proposal (and its Representatives) pursuant to a customary confidentiality
agreement not less restrictive to such person than the confidentiality provisions of the [J&JGDT] Confidentiality Agreement, and (ii) participate in discussions or negotiations with the
person making such Takeover Proposal (and its Representatives) regarding such Takeover
Proposal. (Kury Ex. 9, 4.02, at SA 00026226-27). J&J alleges multiple breaches of this
provision. Specifically, J&J alleges that (i) Guidants financial advisors encouraged BSC to
make a Takeover Proposal, (ii) Guidant furnished information about itself to Abbott, though
Abbott was neither a person making [a] Takeover Proposal nor a Representative of any such
person, (iii) Guidant did so pursuant to a confidentiality agreement less restrictive to BSC than
the confidentiality provisions of the [J&J-GDT] Confidentiality Agreement, and (iv) Guidant
improperly furnished information to the FTC to facilitate BSCs Takeover Proposal.
- 39 KL3 3002155.1
(i)
85.
Solicitation
As addressed in more detail above (see 13 to 14, supra) the evidence
adduced at trial shows that on October 27, 2005, shortly after J&J announced that it was
considering its alternatives under the Merger Agreement, JPMorgan banker Stute met with BSC
CFO Best and discussed a possible transaction between BSC and Guidant. (Best Ex. 1, at SS
00112369; Best Dep. 12:5-14:14). During that meeting, Best made Stute aware that he was
interested in discussing the possibility of BSC acquiring Guidant and, Stute, in turn, told Best
that he would go back and talk to Guidant. (Best Dep. 12:18-14:4). Although BSCs financial
advisor Merrill had recently prepared at least two lists of potential strategic options for BSC to
consider, neither included a transaction with Guidant. (Tr. 540:9-541:8 (Hartman); PX 34-36).
Documents also reflect that immediately following that meeting a Merrill banker reported that
Best was fired up and by the next day Merrill was evaluating potential deal structures and
began preparing an October 31 presentation to BSCs management regarding a potential
transaction with Guidant. (Tr. 519:25-520:12, 529:4-533:21 (Hartman); PX 30; PX 33). Shortly
thereafter, on November 1, BSC Chairman Nicholas called Guidant Chairman Cornelius and
proposed that they meet to discuss a possible business combination transaction between BSC and
Guidant. (Best Ex. 2; Best Dep. 15:9-18:3).
86.
The timing of Stutes visit, just several days after J&J had publicly
announced that it was considering its alternatives under the initial merger agreement, the report
that Best was fired up about a potential Guidant transaction several hours after Stutes visit, the
urgent commencement of work at Merrill, and the lack of record evidence reflecting any
consideration by BSC of a transaction with Guidant before Stutes visit, all indicate that Stute
more likely than not encouraged, and therefore under 4.02, solicited Nicholas inquiry.
- 40 KL3 3002155.1
(ii)
87.
Furnishing Diligence to Abbott
Guidant contends that it was permitted to furnish diligence to Abbott
because Abbott could be considered to have made a Takeover Proposal and/or was BSCs
Representative. For the reasons discussed below the Court rejects both of these arguments.
(1)
88.
Abbott did not make a qualifying Takeover Proposal
Guidant argues that Abbott could be considered a co-bidder in
connection with BSCs Takeover Proposal because its December 5, 2005 tentative proposal
included a placeholder for a divestiture buyer such as Abbott, citing the statement in that
proposal that we are prepared to divest Guidants vascular intervention and endovascular
businesses, and because the relationship between Abbott and BSC at some point became that of
members of a joint venture.
(Tr. 666:1-667:18 (Brown); Brown Aff. 33 (DX 163)).
Alternatively, Guidant argues that Abbott could be considered to have made a Takeover Proposal
itself because the Accession Agreement constituted an inquiry from Abbott relating to a direct
or indirect acquisition or purchase, in one transaction or a series of transactions, of assets that
constitute 15% or more of the assets of Guidant. (Brown Aff. 31-32 (DX 163)). Neither
argument is convincing.
89.
To start, each argument suffers from the fact that the evidence shows that
no one viewed Abbott to be a person making a Takeover Proposal. OBrien, counsel for BSC,
testified that she was not aware of any proposal by Abbott made directly to Guidant, either
jointly with BSC or on its own. (Tr. 276:1-276:13 (OBrien)). Similarly, Abbott in-house
counsel Gunther confirmed that Abbott held discussions only with BSC, not Guidant, about
possibly purchasing the [VI] and [ES] business of Guidant in connection with [BSCs]
acquisition of Guidant as a whole. (Gunther Dep. 32:11-32:16). Gunther further testified that
she was not aware of any document that was styled as a proposal to acquire assets and was
- 41 KL3 3002155.1
provided to Guidant by Abbott. (Id., at 216:7-216:9). There is nothing in the proxy statement
issued by BSC and Guidant in connection with their proposed transaction indicating that Abbott
made a Takeover Proposal or was a co-bidder with BSC.
(Tr. 279:19-280:14 (OBrien)).
Mulaney testified that he advised Kury that Abbott could have been and came close to being
a joint bidder. (Tr. 873:12-875:19 (Mulaney)). With that background established, the Court now
addresses the particulars of Guidants arguments.
(a)
Abbott was not part of the person making BSCs tentative proposal
90.
Under 4.02(a), in response to a qualifying Takeover Proposal, Guidant
was permitted to furnish information to the person making that proposal and its
Representatives. (Kury Ex. 9, at SA 00026226-27). The term person is defined in 8.03(e)
to mean an individual, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity. (Kury Ex. 9, at SA 00026246).
Guidant contends that Abbott and BSC were co-bidders or were engaged in a joint venture
by the time Guidant began furnishing Abbott with due diligence.
91.
As support for this position, Guidant presented expert testimony from
Meredith Brown, a retired corporate partner at Debevoise & Plimpton LLP, who opined that it
would be reasonable to conclude that BSC and Abbott constituted a joint venture, which he
defined, by reference to Barrons Dictionary of Finance and Investment Terms, to mean an
agreement by two or more parties to work on a project together. (Brown Aff. 3(e), 33
(DX 163)). J&J takes issue with Browns definition of joint venture, arguing that, because in
the definition of person the term joint venture is listed in a series ending in the phrase or
other entities, it would be more appropriate to use the definition of joint venture found in
Blacks Law Dictionary: A legal entity in the nature of a partnership engaged in the joint
undertaking of a particular transaction for mutual profit. 839 (6th ed. 1990). J&J has the better
- 42 KL3 3002155.1
of the argument. The definition of person reflects a clear intent on the part of the parties that
the term refer to an entity of more definite legal existence than simply an agreement to work
together on a project. Because there is no evidence that Abbott and BSC formed such an entity
before Guidant began furnishing Abbott with information, Abbott could not reasonably be
considered part of the person making BSCs tentative proposal.
92.
Moreover, the evidence shows that BSC and Abbott were not engaged in a
joint venture, even as that term was loosely defined by Brown. OBrien testified that [t]here
was no agreement on the part of Abbott do anything until [the Transaction Agreement]. (Tr.
308:6-308:13 (OBrien)). Indeed, Abbott declined to enter into a non-binding letter of intent
with BSC, even though as drafted it was subject to Abbotts satisfactory completion of due
diligence. (Tr. 274:10-276:15 (OBrien); Gunther Dep. 74:16-75:18; Knopf Ex. 25, at BSC
00123085). Best testified that, as of December 27, BSC and Abbott had still not reached
agreement on the basic terms of a transaction. (Best Dep. 128:17-129:16). The confidentiality
agreement between BSC and Abbott explicitly stated that [e]ach party hereto agrees that no
contract or agreement providing for any transaction involving the Proposed Transaction shall be
deemed to exist between the parties hereto unless and until a final definitive agreement regarding
the Proposed Transaction has been executed and delivered by the parties hereto. (Mulaney Ex.
18, at SA 00092290).
93.
Further, the evidence shows that BSC and Abbott were contemplating a
bid-and-divest transaction, not a joint-bid to Guidant.9 (Tr. 274:10-276:3 (OBrien); Knopf Ex.
J&J presented expert testimony from John C. Coates, Professor of Law at Harvard Law
School, who described various differences between joint bids and bid-and-divest-transactions
and how BSCs tentative proposal and definitive offer was in the nature of a bid-and-divesttransaction. Among other things, Coates noted that (i) BSC structured its tentative proposal so
that it, and only it, was the buyer of Guidant, stating in its bid letter that its proposal was to
combine the businesses of our two companies and that BSC would acquire all the shares of
- 43 KL3 3002155.1
25, at BSC 00123085). BSC never agreed to share control over its bid for Guidant with Abbott,
and instead retained discretion to terminate its bid without Abbotts prior approval. (Knopf Dep.
197:17-203:11, 246:5-246:22). As BSC in-house counsel Knopf explained, we wanted to
control our own destiny. (Knopf Dep. 200:2-203:11). BSC rejected numerous revisions to the
Transaction Agreement proposed by Abbott that would have given Abbott a say in Guidants
transaction with BSC because BSC did not want Abbott telling it what to do and because Abbott
was not going to be a party to the Merger Agreement, which was negotiated exclusively between
BSC and Guidant. (Knopf Ex. 43, at BSC 00109953; Tr. 277:2-277:22 (OBrien)). When BSC
made its definitive offer, it did so in a manner designed to make clear to Guidant that the offer
was from BSC and not Abbott, sending Guidant a copy of the BSC-Abbott Transaction
Agreement solely to facilitate [Guidants] review of Boston Scientifics offer. (Knopf Ex. 50,
at BSC 00130912; Tr. 278:9-279:7 (OBrien)). Indeed, in his January 9 e-mail to Guidants
Board of Directors, Guidant Chairman Cornelius referred to the BSC-ABT Transaction
Agreement as a side agreement. (Kury Ex. 41, at GDT 00293690).
94.
Finally, there is no dispute that Abbott was not a co-bidder or joint
venturer when BSC made its tentative proposal. (Tr. 263:23-264:6 (OBrien); Knopf Dep.
50:18-52:5; Best Dep. 54:24-55:5). Accordingly, even if the Court were to find that BSC and
Abbott were by some point in late December 2005 engaged in a joint venture, that venture was
not the person from whom Guidant received a Takeover Proposal on December 5. The inclusion
Guidant (Kury Ex. 10, at GDT 00111865); (ii) BSC only committed to sell to Abbott those
assets that BSC wanted to divest and did not permit Abbott to negotiate directly with Guidant
over the terms on which Abbott could buy those assets (Gunther Dep. 86:14-87:24, 190:14191:20); and (iii) BSC never agreed to share control over the bid with Abbott. (Knopf Dep.
197:17-203:11, 246:5-246:22; Tr. 277:16-277:22 (OBrien)). (Coates Aff. 67-68 (PX 15).
- 44 KL3 3002155.1
in BSCs proposal of a placeholder for a divestiture partner is not sufficient to make Abbott part
of the person that made the proposal.
(b)
95.
Abbott did not make a Takeover Proposal of its own

As this Court observed in its summary judgment decision, the definition of
Takeover Proposal is unquestionably a broad one, encompassing any inquiry . . . from any
person relating to, or that could reasonably be expected to lead to, any direct or indirect
acquisition or purchase, in one transaction or a series of transactions, of assets . . . or businesses
that constitute 15% or more of the revenues, net income or assets of Guidant. J&J Summary
Judgment Decision, 2014 WL 3728598, at *20. The term inquiry is not defined in the Merger
Agreement. Blacks Law Dictionary defines the term to mean a request for information.
Guidant contends that the Accession Agreement was just such an inquiry from Abbott.
(Thompson Reuters 9th ed. 2009).
96.
Among other problems with Guidants argument is that the Accession
Agreement does not contain any request for information. Indeed, at the instruction of Duwe
(Duwe Ex. 5), Guidants due diligence ground rules specified that any request for information by
Abbott had to be put to Guidant through BSC and not from Abbott, stating in relevant part that
[p]rior to Boston Scientifics entering into a definitive agreement to acquire Guidant,
incremental information sought by ABT regarding Guidants VI/ES business should be requested
from Boston Scientific in writing. (Kury Ex. 30, at BSC 00108503). In his e-mail transmitting
those ground rules to OBrien, John emphasized that: All communications relating to the third
party diligence should come through Boston [Scientific] or its advisors.
00108499).
- 45 KL3 3002155.1
(Id., at BSC
97.
Furnishing information to Abbott in accordance with Guidants ground
rules, i.e., having any inquiries from Abbott come through BSC or its advisors, would be a
breach of the Merger Agreement. As Judge Lynch earlier held in this case:
A somewhat closer question might be presented if Abbott was recruited by BSC,
but BSC not Abbott proposed to Guidant that Guidant send due diligence to
Abbott. (For example, one might imagine BSC telling Guidant that it had a
possible divestiture party in mind, and that Guidant should therefore pass the due
diligence along to Abbott.) This scenario, perhaps the most likely one , would
be a breach because Guidant was allowed to send information only to the person
making [the] Takeover Proposal.
J&J Dismissal Decision, 525 F. Supp. 2d at 355.
(c)
98.
Qualifying Proposal
Even if Abbott did make a Takeover Proposal, either jointly with BSC or
on its own, which it did not, and even if that proposal had been deemed by the Guidant Board to
be reasonably likely to lead to a Superior Offer, which it was not, Guidant would still have not
been entitled to furnish Abbott with due diligence. Under 4.02(a), Guidant was permitted to
furnish information to a person making a Takeover Proposal only if such proposal was bona
fide, and even then such right was expressly subject to compliance with Section 4.02(c),
which required Guidant to promptly advise [J&J] orally and in writing . . . of . . . the material
terms and conditions . . . and the identity of the person making any such Takeover Proposal.
(Kury Ex. 9, 4.02, at SA 00026226-28). Neither of those conditions was met with respect to
any Takeover Proposal supposedly made by Abbott.
99.
A bona fide Takeover Proposal is one made [i]n or with good faith;
honestly, openly, and sincerely; without deceit or fraud. Blacks Law Dictionary 177 (6th ed.
1990). Abbotts role in BSCs transaction was anything but that of a person making an honest
and open proposal. The evidence reflects that Guidant took care to ensure that Abbott did not
make a Takeover Proposal, structuring their interaction to avoid triggering the disclosure
- 46 KL3 3002155.1
obligations in 4.02(c); agreeing in the Addendum not to disclose the existence or name of any
third party who is a potential purchaser of the Companys assets to be divested even if required
to do so by pre-existing contract (as it was by the Merger Agreement) (Kury Ex. 21, at GDT
00133823); requiring in its due diligence ground rules that any inquiry by Abbott come from
BSC (Kury Ex. 30, at BSC 00108503); and representing, falsely, in the Accession Agreement
that Abbott had been retained by [BSC] to advise it in connection with a potential transaction
rather than saying, as BSC outside counsel OBrien proposed, Abbott is considering the
possible acquisition of certain assets of Guidant. (Knopf Ex. 34, at BSC00127641; Duwe Ex.
9).
100.
Moreover, Guidant never advised J&J that Abbott was a person making a
Takeover Proposal, either on its own or together with BSC. As a result, Guidant would have
been prohibited from furnishing information to Abbott even if it had made a bona fide Takeover
Proposal.
(2)
101.
Abbott was not BSCs Representative
The term Representatives is defined in 4.02(a) of the Merger
Agreement to mean the directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other advisor, agent or representative of Guidant or its
subsidiaries. (Kury Ex. 9, at SA 00026226). Earlier in this case, Judge Lynch held that, by the
principle of ejusdem generis, a divestiture party is too unlike the enumerated Representatives
to fall within any reasonable interpretation of that term . . . [and] Abbott can no more be
considered a representative by virtue of its loan to BSC than it can by virtue of its status as a
divestiture party. J&J Dismissal Decision, 525 F. Supp. 2d at 348-49. With respect to the latter
conclusion, Judge Lynch found that it would be a mistake to interpret representative to include
any and all lenders because [i]nvestment bankers, financial advisors, and accountants provide
- 47 KL3 3002155.1
services to the bidder to facilitate the transaction whereas [l]enders provide resources. Id. at
349.
102.
Guidant now argues that Abbott was BSCs Representative because it
was by way of its divestiture a potential source of financing for BSCs proposal. It also argues
that it is necessary to interpret the term Representative broadly and flexibly to include Abbott,
otherwise Guidant would not receive the benefit of its bargain, which Mulaney described as
being free under the Merger Agreement to consider unsolicited proposals superior to J&Js
merger terms as was necessary and appropriate for the passive market check process in the
Merger Agreement to serve its intended purpose. (Mulaney Aff. 26 (DX 167)).
(a)
103.
Potential Source of Financing
As support for its contention that Abbott was a potential source of
financing for BSCs Takeover Proposal, Guidant points to the facts that from the time BSC made
its tentative proposal, BSC intended to use the proceeds of the divestiture transaction to fund its
proposal, that by December 16 it was contemplated that Abbott may provide a loan to BSC, and
that Abbott ultimately did agree in the Transaction Agreement to loan $900 million to BSC.
(Kury Ex. 11; Tr. 556:4-557:4, 563:5-563:23 (Hartman); Tr. 307:20-308:5 (OBrien)). But the
record also reflects that Abbott refused to sign a December 19 letter of intent memorializing the
terms of the divestiture transaction proposed by BSC at a December 16 meeting, including the
proposed loan. (Tr. 274:10-276:15 (OBrien); Knopf Ex. 25). The fact that Abbott ultimately
agreed to make a loan to BSC does not mean that Abbott was a potential lender as of December
22, when Guidant began furnishing it with information.
104.
Even if Abbott was a potential lender to BSC, Guidant would not have
been permitted to furnish information to Abbott. In the first place, Judge Lynchs prior ruling
with respect to the definition of Representative, and this Courts reliance on that ruling (J&J
- 48 KL3 3002155.1
Summary Judgment Decision, 2014 WL 3728589, at *18-19), establishes as the law of the case
that, by application of the principle of ejusdem generis, Abbott is not a Representative under
the unambiguous language of 4.02(a).10 Klaper v. Cypress Hills Cemetery, No. 10-cv-1811
(NGG) (LB), 2014 WL 1343449, at *4 (E.D.N.Y. Mar. 31, 2014) (collecting cases; law of the
case doctrine applies to legal determinations made at the motion to dismiss stage, such as
interpreting contractual language).
105.
Further, the Court agrees with Judge Lynchs conclusion that Abbotts
status as a potential lender did not entitle Guidant to provide it with confidential business
information under any reasonable interpretation of the term Representatives in 4.02(a).
There is no difference in this context between a lender and a potential source of financing.
If anything, including the latter as a Representative is even more attenuated because under that
interpretation Guidant could have provided information to any party that entered into a purchaseand-sale agreement with BSC (e.g., a hospital that purchased catheters from BSC) if BSC could
potentially use the proceeds to finance its acquisition of Guidant.
This would surely be
inconsistent with the parties intent.

106.
To buttress its argument, Guidant presented evidence of purported
custom and practice among M&A practitioners relating to the provision of diligence to a
topping bidders sources of financing through testimony of Brown. Brown testified that he
believe[s] that nonpublic information is not infrequently furnished to financing sources of
10
When properly applied, ejusdem generis operates to avoid ambiguity, not resolve it.
Am. Steamship Owners Mut. Prot. & Indem. Assoc., Inc., No. 06 Civ. 3123 (CSH), 2008 WL
4449353, at *7 (S.D.N.Y. Sept. 29, 2008), affd on other grounds, sub. nom., New York Marine
& Gen. Ins. Co. v. Lafarge N.A., Inc., 599 F.3d 102 (2d Cir. 2010); Wagner Seed Co. v. Bush,
946 F.2d 918, 925 (D.C. Cir. 1991) (rule of ejusdem generis supplies a precise meaning to an
otherwise ambiguous text); Folger Adam Co. v. PMI Indus., Inc., No. 87 Civ. 9272 (WK), 1990
WL 277366, at *1 (S.D.N.Y. June 11, 1990) (doctrine of ejusdem generis eliminates any
ambiguity that might exist in the word indemnify).
- 49 -
KL3 3002155.1
unsolicited competing bidders, even if (as is often the case) the no-talk provision in the merger
agreement does not expressly include financing sources or similar words in the description of
the categories of persons to whom such information can be furnished. (Brown Aff. 29 (DX
163)). This evidence is not persuasive and runs counter to Indiana law.
107.
Under Indiana law, custom and usage evidence of the sort on which
Guidant relies may never be used to contradict the unambiguous terms of a contract. Roberts v.
Cmty. Hosps. of Ind., Inc., 897 N.E.2d 458, 467 (Ind. 2008) (Indiana follows the four corners
rule that extrinsic evidence is not admissible to add to, vary or explain the terms of a written
instrument if the terms of the instrument are susceptible of a clear and unambiguous
construction.) (citation and internal quotation marks omitted); Herz Straw Co. v. Capital Paper
Co., 24 N.E.2d 921, 922 (Ind. 1940) (Usage or custom may never be utilized . . . to vary or
contradict the terms of a clear and unambiguous contract. In other words, an ambiguity or
uncertainty must appear in the contract before it is proper to turn to usage and custom to
determine its meaning.). Because the definition of Representatives is unambiguous by the
proper application of the principle of ejusdem generis, the Court may not consider Guidants
custom and usage evidence to determine its meaning.
108.
Even if as a matter of custom and practice potential sources of financing
could be deemed to be Representatives, Abbott was not a customary source of financing, such
as a bank. Among other things, Abbott was a competitor of J&J. As Stoll acknowledged, an
incumbent bidder like J&J would view the disclosure of Guidants confidential information to a
divestiture candidate like Abbott as diminishing Guidants value.
(Stoll Dep. 98:22-99:6).
Mulaney admitted that one of the purposes of 4.02(a) was to protect Guidants proprietary
information [from being] compromised or used for competitive purposes by other parties.
- 50 KL3 3002155.1
(Mulaney Aff. 32 (DX 167)). It was for that reason, among others, that Stoll advised Kury not
to allow potential divestiture candidates to conduct due diligence until after Guidant entered into
a stock purchase agreement with BSC, which would necessarily entail terminating the Merger
Agreement. (Stoll Dep. 97:22-99:13; Kury Ex. 68).
109.
Moreover, in response to a question from the Court, Brown acknowledged
that he would not consider a divestiture candidate, like Abbott, to be a financing source. (Tr.
635:20-635:24 (Brown)). Nor did Brown opine that it is customary to provide diligence to a
competitor of an incumbent bidder, when not expressly allowed for by contract, on the ground
that it is a potential source of financing for a topping bid, let alone where, as here, financing
sources are not even included in the definition of Representatives to whom the target is
permitted to furnish information. Brown also did not testify that it was customary to provide
diligence to parties who may provide funds to a bidder for the purpose of refinancing the
bidders acquisition debt, as was the case here.
110.
J&Js M&A expert Coates testified that, based on a survey of forty-two
agreements, the definition of Representatives to whom confidential information may be shared

varied widely. Some contracts were more restrictive, others less so and others were identical to
the Merger Agreement. (Coates Aff. 39-41 (PX 15); Tr. 236:1-251:3 (Coates)). He found
this to be true both before and after Judge Lynch issued his opinion in this case. Based on these
results, Coates concluded that there was nothing inconsistent between custom and practice on the
one hand and J&Js interpretation of the term Representatives as excluding Abbott on the
other. (Coates Aff. 77-78 (PX 15); Tr. 236:1-251:3 (Coates)).11
11
Among the agreements reviewed by Coates are several in which a topping bidders
sources of financing were expressly identified as parties to whom the target was permitted to
furnish information, including Chicago Mercantile Exchange Holdings Inc. (Merger Agreement)
(Oct. 17, 2006) (DX 124), Superior Essex Inc. (Merger Agreement) (June 11, 2008) (DX 87),
- 51 KL3 3002155.1
111.
Finally, even if the Court accepted the premises that divestiture candidates
are potential sources of financing and that potential sources of financing are Representatives,
this would not help Guidant because BSC did not intend to use the funds that it would potentially
receive from Abbott to finance its proposal. BSC consistently stated that it had sufficient
financing from BofA and Merrill to consummate the merger with Guidant. (Kury Ex. 10, at
GDT 00111865; Best Ex. 31, at BSC 0010594). The evidence shows that BSC intended to use
the funds that it received from Abbott to refinance is acquisition debt by paying down amounts
drawn on a $7 billion bridge loan that Merrill and BofA committed to provide BSC to finance its
proposal. (Best Ex. 13, at BSC 00028367; Best Dep. 60:10-61:12). Even Guidant has not gone
so far as to claim that potential sources of funds to refinance acquisition debt fall within the
definition of Representatives.
(b)
112.
Anyone Working With BSC
Guidant also argues that a representative is anyone working with the
person making a Takeover Proposal. Judge Lynch rejected a similar argument made by Guidant
on its motion to dismiss: that anyone who is a necessary participant in a Takeover Proposal is a
representative. Judge Lynch found that [n]othing in the text supports this reading, which would
include all sorts of parties [who] are necessary to the transaction, from the FTC, which had to
approve it, to the workers who maintained the phone lines over which it was negotiated . . . It
would be understandable if the parties had chosen to draft an agreement limiting disclosure to
those third parties who are involved in the prospective transaction in some immediate and
and Audible Inc. (Merger Agreement) (Jan. 30, 2008) (DX 70). (Coates Aff. 40-41 (PX 15)).
The Chicago Mercantile agreement is of particular note because it pre-dates Judge Lynchs
opinion in this case and Skadden represented the purchaser, reflecting at least some evidence of
Skaddens awareness of the practice of including financing sources. (DX 124, 9.2).
- 52 KL3 3002155.1
necessary way, but they did not do so. J&J Dismissal Decision, 525 F. Supp. at 347. The same
is equally true of Guidants new argument that the term representative includes anyone working
with the person making a Takeover Proposal.
This would include people who provide
messenger service, people who provide pens and pencils, and the like. If that is what the parties
intended the term Representatives to mean there would have been no purpose to listing the
specific categories included in the definitioni.e. investment banker, financial advisor,
attorney, accountant. (See Tr. 930:12-940:8 (Mulaney)).
(c)
113.
Passive Market Check
Guidant also argues that interpreting the term Representatives in 4.02
as not including potential financing sources and divestiture candidates would defeat the passive
market check process contemplated by the Merger Agreement because Guidant would not be
able to receive or consider bids from parties that need financing or to divest assets in connection
with a Takeover Proposal. This is plainly incorrect.
114.
In actuality, there were many ways that BSC could have made a definitive
offer without Guidant furnishing information to Abbott as BSCs Representative.
For
instance, BSC could have made a joint Takeover Proposal with Abbott, just as BSC had planned
to do with Medtronic. (Best Dep. 29:7-30:21; Tr. 569:4-570:14 (Hartman)). Alternatively, BSC
could have agreed in its definitive offer to divest whatever assets were required by regulators
without first arranging for a committed divestiture transaction. (Best Dep. 33:17-33:23). A&P
partner Feinstein, antitrust counsel for BSC, testified that in her experience it is common for a
party making a takeover proposal not to arrange a divestiture until after a deal is completed.
(Feinstein Dep. 46:18-47:16). Skadden partner Stoll, antitrust counsel to Guidant, similarly
testified that it is more likely than not in a merger transaction involving a divestiture component
that the divestiture candidate will only receive diligence after a definitive merger agreement is
- 53 KL3 3002155.1
entered into with the target, which is what he urged Guidant to do in connection with BSCs
tentative proposal. (Stoll Dep. 101:20-102:7, 94:15-99:13); see also (Tr. 234:18-235:4 (Coates)
(usually divestiture bidders do not insist on being given access to confidential information; and
are frequently willing to engage in negotiations without getting confidential information)).
Guidants expert Brown himself identified several other ways in which BSC could have made a
definitive offer without Guidant furnishing diligence to Abbott. (Brown Aff. 43 (DX 163); Tr.
640:8-642:8 (Brown); see also (Tr. 235:5-235:19 (Coates) (enumerating various ways in which
BSC could have made a definitive offer without breaching 4.02)).
115.
While the Court can imagine circumstances in which prohibiting a topping
bidders potential financing sources from conducting due diligence on a target could impede the
making of competing bids and/or the ability of such bids to reach the point of transaction
certainty to be considered a Superior Proposal, that was not the case here. BSC had committed
financing from BofA and Merrill sufficient to fund its proposal.
(Kury Ex. 10, at GDT
00111865; Best Ex. 31, at BSC 0010594; Tr. 260:18-260:22 (OBrien)). Guidant was permitted
to furnish information to those institutions because they were also acting as BSCs investment
bankers and financial advisors, bringing them within the definition of Representatives.12 (Tr.
306:16-307:5 (OBrien); Kury Ex 10, at GDT 00111867). Even in those circumstances where
barring the provision of diligence to a topping bidders financing sources could impede the
12
Guidant argued that because Bank of America, N.A., one of two Bank of America
affiliates that signed the commitment letter, provided neither investment banking nor financial
advisory services to BSC, under J&Js interpretation of the term Representatives Guidant
would not have been permitted to furnish information to Bank of America, N.A. But Banc of
America Securities LLC, which also signed the commitment letter, was engaged by BSC to
provide both investment banking and financial advisory services. (PX 38; Hartman Ex. 2). In
any event, there is no evidence that Bank of America, N.A. ever conducted any due diligence on
Guidant; the only related evidence in the record reflects that Bank of America, N.A. conducted
due diligence on BSC. (Best Dep. 146:25-150:4; Best Exs. 27, 29).
- 54 KL3 3002155.1
making of competing bids, that would not justify providing diligence to a competitor of the
incumbent bidder, as opposed to a customary source of financing like BofA and Merrill.
116.
Underlying Guidants argument is a suggestion that Guidants fiduciary
duties to its shareholders somehow trumped the plain language of 4.02. But the enforceability
of 4.02 of the Merger Agreement was specifically upheld by the District Court for the District
of Indiana in a 2005 decision denying an application for a temporary restraining order and
preliminary injunction brought derivatively on behalf of Guidants shareholders and opposed by
Guidant itself. (PX 13). Adopting Guidants arguments in that litigation, the Court concluded
that an independent corporate fiduciary exercising sound business judgment [could have bound
Guidant to 4.02] in an arms-length bargain because, in return for accepting those terms, the
Directors extracted a lock-in provision from J&J, which mutually obligated J&J to perform under
the agreement. Id., at 25-28. The court further held that under Indiana law no-talk and noshop provisions are valid if they serve to attract a bidder, like J&J. Id. In reaching that
conclusion the court adopted the following analysis in Hastings-Murtagh v. Texas Air Corp., 649
F. Supp. 479, 484 (S.D. Fla. 1986):
A review of Delaware law shows that such provisions are not void
per se. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506
A.2d 173 (Del. 1985); Thompson v. Enstar Corp., 509 A.2d 578
(Del. Ch. 1984). Rather, such provisions are impermissible only if
they are adopted in a situation where there is a live auction with
competing bidders. Where lock-up and no-shop provisions were
used to encourage a bidder to submit an offer, as distinguished
from precluding bidders in an active auction, they have been
upheld. . . The validity of the lock-up and no-shop provisions is
reviewable only in light of the circumstances that existed and were
known to the directors at the time they were adopted. Subsequent
events cannot be taken into consideration. . . The lock-up and noshop provisions did not improperly preclude consideration of any
[other] bid.
Id. at 484-85.
- 55 KL3 3002155.1
117.
Guidant offers no reason why this Court should depart from the sound
reasoning of the Indiana District Court in accepting arguments advanced by Guidant itself about
the validity of the very provision involved here. As Judge Lynch held earlier in this case, the
parties were permitted to restrict [the] unsolicited provision of information designed to induce a
bid, as it is clear that a board has the authority to give the proponent of a recommended merger
agreement reasonable structural and economic defenses. J&J Dismissal Decision, 525 F. Supp.
2d at 354-55 (internal quotation marks omitted).
118.
Based on the foregoing considerations, the Court finds that Guidant
breached 4.02(a) by furnishing information about itself to Abbott to facilitate BSCs Takeover
Proposal.
(iii)
119.
BSC-GDT Confidentiality Agreement
J&J claims that Guidant also breached 4.02(a) by furnishing information
about itself to BSC pursuant to a confidentiality agreement that was less restrictive to BSC than
the confidentiality provisions of the J&J-GDT Confidentiality Agreement. Specifically, J&J
asserts that the BSC-GDT Confidentiality Agreement was less restrictive in that, unlike the J&JGDT Confidentiality Agreement, it permitted Guidant confidential information to be shared with
financing sources and potential purchasers of the assets to be divested. Guidant denies this
claim, arguing that the definition of Representatives was not among the confidentiality
provisions in the J&J-GDT Confidentiality Agreement.
120.
Guidants argument is absurd.
In both agreements, the definition of
Representatives defines to whom Guidant information may be given. By adding potential

purchasers to the definition of Representatives in the BSC-GDT Confidentiality Agreement
Guidant expanded the universe of people with whom BSC was permitted to share its confidential
information.
Skadden clearly understood this.

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KL3 3002155.1
In his December 7 e-mail to Kury, Duwe
explained that BSCs outside counsel at Shearman would like to add to the term
Representatives with whom they can share information third parties reasonably acceptable to
Guidant who BSX identifies as potential purchasers of the assets to be divested . . . . (Duwe Ex.
1).
Duwe further testified that one of the purposes of the definition of representatives was to
define the category of people to whom the disclosure of confidential information could be
made. (Duwe Dep. 45:23-47:4). The notion that a term in a confidentiality agreement that
defines to whom a partys information may be given is not a confidentiality provision defies
reason.
121.
Moreover, Guidants interpretation of the phrase confidentiality
provisions would effectively nullify the limitations in 4.02(a) as to whom Guidant was
permitted to furnish information in response to a Takeover Proposal. Under 4.02(a), in
response to a qualifying Takeover Proposal, Guidant was permitted to furnish information only
to the person making the Takeover Proposal and its Representatives. (Kury Ex. 9, at SA
00026226). That restriction could easily be circumvented if, as Guidant asserts, it was permitted
to enter into a confidentiality agreement with the person making a Takeover Proposal that
allowed that person to provide Guidants information to whomever it wished. Indeed on crossexamination, Mulaney acknowledged that would be true if the phrase confidentiality
provisions is interpreted in the way that he and Guidant propose.
(Tr. 986:1-987:25
(Mulaney)). This certainly could not have been the parties intent. 13
122.
For the reasons discussed, the Court finds that Guidant breached 4.02(a)
by furnishing information about itself to BSC pursuant to a confidentiality agreement less

13
Mulaney acknowledged that the term confidentiality provisions was added to 4.02 at
his request to clarify that the requirement that Guidant furnish information pursuant to a not less
restrictive confidentiality agreement did not apply to certain standstill provisions contained in
the J&J-GDT Confidentiality Agreement. (Tr. 742:3-742:12 (Mulaney)).
- 57 KL3 3002155.1
restrictive to BSC than the confidentiality provisions of the J&J-GDT Confidentiality

Agreement.
(iv)
123.
Furnishing Diligence to the FTC
J&J claims that Guidant also breached 4.02(a) by voluntarily furnishing
information to the FTC to facilitate expeditious review of BSCs definitive offer. The FTC was
clearly neither a person making a Takeover Proposal nor a Representative of such a person.
Guidant contends that Representatives includes anyone who is a necessary participant in a
Takeover Proposal. As previously noted (see 112, supra) Judge Lynch rejected that very
argument. J&J Dismissal Decision, 525 F. Supp. at 347. This conclusion is both correct and the
law of the case.
b.
124.
Section 4.02(b)
Under 4.02(b) Guidant was prohibited from entering into any
Acquisition Agreement, defined as any letter of intent, memorandum of understanding,

agreement in principle, merger agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement or other similar Contract constituting or related to, or
that is intended to or could reasonably be expected to lead to, any Takeover Proposal (other than
a confidentiality agreement referred to in Section 4.02(a). (Kury Ex. 9, at SA 00026227-28).
J&J claims that Guidant breached this provision by entering into an oral joint defense agreement
with BSC and Abbott. Guidant rejects this claim, arguing that the joint defense agreement is the
nature of a confidentiality agreement and does not fall with the definition of Acquisitions
Agreement, which Guidant argues is best understood to encompass only agreements that are
transactional in nature. (Tr. 815:16-817:10 (Mulaney)).
125.
The problem with Guidants argument is that the definition of
Acquisition Agreement expressly excludes an agreement that is not transactional in nature,

- 58 KL3 3002155.1
namely the confidentiality agreement referred to in section 4.02(a). There would be no need
for that exception unless such an agreement would otherwise fall within the definition of an
Acquisition Agreement. Penn. Dept of Public Welfare v. Davenport, 495 U.S. 552, 560-564
(1990) (abrogated by statute). It follows that Guidant was prohibited from entering into any
contract similar to the confidentiality agreement referred to in section 4.02(a) that related to
. . . any Takeover Proposal. Because, as Guidant concedes, the joint defense agreement was in
the nature of a confidentiality agreement, and it clearly related to BSCs Takeover Proposal,
Guidant violated 4.02(b) by entering into that agreement. The same can be said of Guidants
having entered into the BSC-GDT Confidentiality Agreement and Accession Agreement, both of
which are confidentiality agreements and relate to BSCs Takeover Proposal. Because the BSCGDT Confidentiality Agreement was less restrictive to BSC than the confidentiality provisions
of the J&J-GDT Confidentiality Agreement, it does not fall within the exception for the
confidentiality agreement referred to in Section 4.02(a), and therefore, the Court concludes that
Guidant breached 4.02(b).
c.
126.
Section 4.02(c)
Under 4.02(c), Guidant was obligated to keep [J&J] fully informed in
all material respects of the status and details (including any change to the terms thereof) of any
Takeover Proposal. (Kury Ex. 9, 4.02(c), at SA 00026228). Compliance with 4.02(c) was a
condition to Guidants right to consider a qualifying Takeover Proposal under 4.02(a) and the
right to terminate under 7.01(f).14 J&J claims that Guidant breached this obligation by failing
to inform J&J that BSC had identified Abbott as its buyer of choice of the assets to be divested
14
Section 4.02(c), and in particular the requirement that Guidant keep J&J fully informed
of the status and details of any Takeover Proposal, was specifically negotiated by Guidant and
J&J. (Townsend Aff. 14-19 (PX 20)).
- 59 KL3 3002155.1
and that Guidant was furnishing information to Abbott related to those assets. Guidant contends
that it kept J&J informed of BSCs divestiture plans in all material respects in that J&J knew
that BSC intended to divest certain of Guidants assets, and that Abbott was a likely choice of
divestiture candidates, and thus J&J had adequate opportunity to formulate its response to BSCs
definitive offer.
127.
The Court finds that Guidant breached 4.02(c). Guidants rationale is
deficient in several respects. BSCs identification of Abbott as the buyer of choice for the
divested assets and the provision of Guidants confidential information to Abbott were clearly
material to the status and details of BSCs Takeover Proposal. The fact that J&J may have
anticipated that Abbott was a likely buyer of the assets to be divested is not relevant to Guidants
failure to inform J&J that it was furnishing diligence to Abbott. Guidants present position that
Abbott could be considered to have made a Takeover Proposal would implicate the additional
requirement of 4.02(c) that Guidant shall promptly advise [J&J] . . . of any Takeover
Proposal, the material terms and conditions of any such Takeover Proposal . . . and the identity
of the person making any such Takeover Proposal . . . . (Kury Ex. 9, at SA 00026228).
2.
128.
Willful
Willful is a notoriously ambiguous word, which can indicate any of a
number of mental states. J&J Dismissal Decision, 525 F. Supp. 2d at 349. In their respective
summary judgment papers, J&J and Guidant each argued that its preferred definition of willful
was evident from the text of the Merger Agreement without relying on extrinsic evidence. J&J
argued that willful means voluntary and intentional. Guidant argued that for a breach to be
willful, it must be deliberate rather than merely the result of an intentional act. This Court found
that the precise meaning of the term willful, as used in the Merger Agreement, is ambiguous and
that consideration of extrinsic evidence was necessary to determine the parties intent. J&J
- 60 KL3 3002155.1
Summary Judgment Decision, 2014 WL 3728598, at *15.
After reviewing the deposition
testimony of the principal deal attorneys for the parties (Skaddens Mulaney and Cravaths
Townsend), each of whom acknowledged discussing use of the term wilful in 7.01 of the
Merger Agreement, this Court found that both were consistent with Mulaneys testimony that the
parties understood the term to include an element of knowledge that breach would ensue and
held that the term wilful, as used in 7.02, requires acting with knowledge that a breach
would ensue, as opposed to merely intentionality. Id.15
129.
Knowledge in the mind of another is a subjective thing. It is not always
capable of proof by positive or direct evidence. It may be inferred or gathered from the outward
manifestations, by the words or acts of the party charged with knowledge and from the facts and
circumstances surrounding or attendant upon the act with which it is charged to be connected.
United States v. Sheiner, 410 F.2d 337, 340 (2d Cir. 1969). Such facts and circumstances may
include, for instance, (i) the absence of evidence corroborating claimed innocent intent, see, e.g.,
Merrill Lynch & Co. v. Commr, 386 F.3d 464, 474 (2d Cir. 2004); (ii) a pattern of misconduct,
see, e.g., United States v. Klausner, 80 F.3d 55, 62-63 (2d Cir. 1996); (iii) concealment of
misconduct, see e.g., United States v. MacPherson, 424 F.3d 183, 190 (2d Cir. 2005); (iv) lack of
candor, see, e.g., Klausner, 80 F.3d at 63; and (v) a defendants sophistication, see, e.g., United
States v. Bok, 156 F.3d 157, 166 (2d Cir. 1998).
15
In the J&J Summary Judgment Decision, this Court adopted Guidants interpretation of
the term willful to mean acting knowingly or with reckless disregard of the law. 2014
WL 3728598, at *12, 15 (citation and internal quotation marks omitted). Consistent with
Guidants interpretation, acting with knowledge that breach would ensue may be established
through proof of either actual or constructive knowledge, including reckless disregard of J&Js
rights. C.f. Fitzgerald Publg Co. v. Baylor Publg Co., 807 F.2d 1110, 1115 (2d Cir. 1986)
(reckless disregard of copyright holders rights qualifies as constructive knowledge that conduct
represents infringement, potentially subjecting infringer to penalty for willful infringement).
- 61 KL3 3002155.1
130.
Guidant claims that any breach by it was innocent because it was advised
by Skadden that Guidant was permitted to furnish information to Abbott as a Representative of

BSC under the Merger Agreement. J&J does not challenge whether good faith reliance on
counsels advice can, as a matter of law, negate a finding of willfulness. Rather, J&J contends
that: (a) Guidant did not receive or rely upon the advice it claims; (b) Guidant engaged in a
pattern of conduct evincing a conscious disregard of J&Js contractual rights; (c) Guidant
concealed its conduct from J&J; (d)
Guidants witnesses have been less than candid in
explaining their actions; and (e) Guidant GC Kury was too sophisticated for Guidants conduct to
be innocently explained.
a.
131.
Absence of Evidence Corroborating Innocent Intent

Guidant claims its breach was innocent because it relied on advice of
counsel. To that end, Mulaney testified that on or around December 20, after BSC Chairman
Nicholas informed Guidant Chairman Cornelius that BSC had decided to proceed with Abbott as
its preferred buyer of the assets to be divested, Mulaney verbally advised Guidant GC Kury that
it was appropriate for Guidant to provide Abbott with diligence because Abbott was providing
financing to BSC through its purchase of the assets to be divested and was therefore a
Representative under 4.02. (Mulaney Aff. 31 (DX 167)). Mulaney further testified that he
told Kury that Abbott was fairly characterized as a representative of Boston Scientific because
it was someone working with Boston Scientific in connection with its takeover proposal. (Tr.
806:1-806:19, 804:19-805:8 (Mulaney)).
132.
There is no reliable evidence corroborating Mulaneys testimony, and
contemporaneous documentary evidence reflects that Guidant furnished diligence to Abbott on a

different basis: the false pretext that Abbott had been retained to advise BSC.
- 62 KL3 3002155.1
133.
Neither of Mulaneys partners, Duwe and Stoll, recalled the basis on
which information was furnished to Abbott, and Kurys professed recollection on the subject is
unreliable. (Duwe Dep. 12:13-13:1; Stoll Dep. 110:10-111:3). Kury does not recall Mulaney
ever telling him that Abbott was BSCs representative. (Tr. 1256:6-1256:9 (Kury)). At trial
Kury acknowledged that he had testified at deposition that he did not recall reaching the
conclusion that Abbott was BSCs representative before Guidant furnished diligence to Abbott.
(Tr. 1256:10-1256:21 (Kury)). He also acknowledged that he had testified at deposition that he
believed that Abbott was a person involved in making the bid. (Tr. 1099:9-1100:21 (Kury)).
Notwithstanding those admissions, Kury testified that, after having tried to parse it out he now
thinks that it was his understanding that we were viewing Abbott as a representative.
(Tr. 1100:14-1102:12 (Kury)). Kury acknowledged that he did not have a recollection of when
he supposedly received this advice from Mulaney, or whether anyone other than he and Mulaney
was involved, and that he is merely surmising that Mulaney gave him this advice before Guidant
furnished diligence to Abbott. (Tr. 1245:17-1246:12 (Kury)).
134.
The supposed advice from Mulaney to Kury is further belied by the
response to Deyos January 23 letter asking for an explanation as to how the disclosure of
Guidant confidential information could possibly have been consistent with the terms of the No
Solicitation clause of the [Merger] Agreement. (Kury Ex. 50, at GDT 00026748) Although
Kury testified that on January 23 his understanding of the position was that Abbott was a
representative and that he believed that he had in mind that the term representative was a term
used in [the Merger Agreement], (Tr. 1239:17-1240:12 (Kury)), his e-mail of that date, drafted
by Mulaney, did not say that Abbott was BSCs representative. (Kury Ex. 51).16 Instead it
16
Similarly, when asked for an explanation by Deyo and Hilton in their January 9 call,
Kury failed to provide this or any other basis for furnishing diligence to Abbott, and made no
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KL3 3002155.1
suggested that Abbott was a co-bidder in BSCs proposal, which both Kury and Mulaney
claimed was not the basis on which diligence was provided to Abbott. (Kury Ex. 51; Tr. 958:7958:14 (Mulaney); Tr. 1101:15-1102:4 (Kury)). Kurys e-mail also referenced the fact that
Abbott was providing financing for Boston Scientifics proposal through a purchase of certain
Guidant assets, the acquisition of equity in Boston Scientific and the provision of debt
financing, even though both Kury and Mulaney admitted that, at the time Guidant provided
diligence to Abbott, they did not know that Abbott was providing debt or equity financing.
(Kury Ex. 51; Tr. 838:4-838:23 (Mulaney); Tr. 1180:17-1181:2 (Kury)).
135.
Kury attempted to explain this omission by stating that the letter was
prepared for him by Mulaney and that he looked at it quickly and sent it out because he was
telling me what ought to be said based on his analysis. (Tr. 1244:24-1245:14 (Kury)). This
explanation is inconsistent with the fact that, after receiving a draft of the e-mail from Mulaney,
Kury sent Mulaney and Duwe an e-mail asking But seriously folks, what is the technical
analysis of whether [Abbott] is a bidder?
(Kury Ex. 57).
Although he had testified at
deposition that he didnt even remember receiving this inquiry from Kury, Mulaney claimed at
trial that after receiving this e-mail, he spoke with Kury and told him that the joint-bidder
discussion was rhetorical, that our rationale is not that theyre a joint bidder and that our
rationale for our conduct under the merger agreement was that Abbott was a representative of
Boston Scientific under the merger agreement. (Tr. 874:9-875:17 (Mulaney)). But Kury had
no recollection of this conversation. (Tr. 1175:7-1176:6 (Kury)). Moreover, even if the Court
reference to any purported advice from Skadden, although the call took place less than three
weeks after Mulaney supposedly conveyed his advice to Kury. (Tr. 169:24-170:15 (Deyo);
Hilton Dep. 219:8-221:15).
- 64 KL3 3002155.1
were to credit Mulaneys testimony, it would beg the question: Why, on January 23, did Kury
need to be told that the rationale for providing diligence to Abbott was that Abbott was BSCs
representative if Mulaney supposedly advised Kury of that rationale in December?
136.
The only contemporaneous documents providing the basis on which
Guidant furnished information to Abbott are: (i) Guidants due diligence ground rules, which
specified that buyers are representatives of Boston Scientific, and as such must sign [an]
Accession Agreement, (Kury Ex. 30, at BSC 0018502-03) the form of which stated that [t]he
firms and/or individual signatories hereto have been retained by Boston Scientific or Guidant, as
the case may be, to advise it in connection with a potential transaction and each such firm and/or
signatory agrees to be bound by the terms and conditions of the Addendum (Kury Ex. 21, at
GDT 00133826); (ii) the Accession Agreement, which granted Abbott access to Guidant
information on the false basis that it had been retained by Boston Scientific to advise it in
connection with a potential transaction (Knopf Ex. 34, at BSC00127641); and (iii) Skaddens
December 30 letter to Cravath representing that materials Guidant furnished to Abbott had been
provided to Boston Scientific or their advisors in connection with their diligence review. (John
Ex. 31).
137.
The ground rules were originally drafted by Stoll with Duwe. (Duwe Ex.
5; Kury Ex. 71; Tr. 1287:21-1289:18 (John)). John testified that it was Guidants position that
any third party buyer of the assets to be divested had to sign the Accession Agreement even
though there was no antitrust reason for characterizing a potential purchaser of the assets to be
divested as BSCs representatives. (Tr. 1292:7-1292:13 (John)). According to John, Stoll was
taking his marching orders from Kury, who signed off on the ground rules before they were
sent to Abbott. (DX 58; Kury Ex. 30; Tr. 1290:23-1291:21 (John)).
- 65 KL3 3002155.1
138.
BSC told John that the representation in the Accession Agreement that
Abbott had been retained to advise BSC was not accurate. (Knopf Ex. 34; Knopf Ex. 35; Tr.
1299:11-1301:19 (John)).
John acknowledged that changing the language from a word
processing perspective would have been fairly straightforward, and that neither Abbott nor BSC
were insisting on the language, but that the parties really wanted to . . . have Abbott have access
to the due diligence in advance of Christmas and that the thing that was holding up Abbott
having diligence was having a signed agreement. (Tr. 1304:14-1304:22, 1311:15-1312:12
(John)). This explanation makes no sense; as John was well aware, Guidant had already begun
furnishing information to Abbott on December 22, after Abbott signed the Accession Agreement
but before BSC did on December 23. (Kury Ex. 72; Stoll Ex. 22). It is also completely at
variance with the evidence.
139.
In the first place, the Court credits the testimony of Abbotts in-house
counsel, Laura Gunther, who testified that she objected to this language prior to Abbotts signing
the agreement on December 22 only to be told by John very firmly that the language needed to
be there and that that was not something that was open to negotiation. (Gunther Dep. 112:14113:5, 113:7-114:1). Gunther had no reason to lie; John does not deny the conversation but only
claims he does not recall it (Tr. 1303:16-1304:23 (John)); and there is record evidence
confirming that John spoke with Gunther before Abbott transmitted a copy of the Accession
Agreement that was ultimately finalized. (DX 59; John Ex. 20; see also Tr. 1372:19-1373:11
(John)).
140.
Second, when OBrien proposed to John that the agreement be revised to
say Abbott is considering the possible acquisition of certain assets of Guidant, (Knopf
Ex. 35) John did not simply say there was no issue from an antitrust perspective, or that
- 66 KL3 3002155.1
Christmas was approaching, or that Abbott was anxious to begin diligence. Instead he elevated
the issue to his corporate partner Duwe and asked him to work this issue with OBrien because
he was not really sure how to address it at this point. (Duwe Ex. 9; Tr. 1300:16-1305:5;
1310:15-1312:23 (John)). As indicated in the Courts question to John, this clearly shows that
although [John] didnt have concerns from an antitrust perspective [he] understood there might
be other perspectives and other issues . . . . (Tr. 1312:13-1312:16 (John)).
141.
At trial, Kury acknowledged that he testified both at his deposition and in
his declaration in support of Guidants Motion for Summary Judgment five and three years ago,
respectively, that he had no recollection of questioning the representation in the Accession
Agreement that Abbott had been retained by BSC when he signed the document. (Tr. 1111:201113:14 (Kury)). But he claimed that when preparing his trial testimony affidavit he had a
subsequent recollection of noting at the time that the word advise in the Accession Agreement
stood out to [him], and of being told by Skadden that this word choice did not make any
difference to the substance of the agreement. (Kury Aff. 82(a); Tr. 1112:15-1113:14 (Kury)).
Kury did not remember who told him that, what the rationale was, or how extensive the
conversation was. (Tr. 1266:2-1266:15 (Kury)).
142.
Kury further testified that there was no substance involved in this
characterization of Abbott because Abbott knew what they were doing; Boston knew what they
were doing; and presumably Guidant knew what they were doing and that if there were
drafting peculiarities or they were using a form that they filled in blanks or whatever, it didnt
change anything and no one was misled. (Tr. 1110:20-1111:4 (Kury)). But the representation
that Abbott was retained to advise BSC was not a drafting peculiarity or the result of filling in
blanks on a form. Abbott and BSC both objected to that language and Kury approved the due
- 67 KL3 3002155.1
diligence ground rules specifying that potential purchasers of the assets are representatives of
Boston Scientific, and as such must sign [an] Accession Agreement. A different form of
accession agreement was used when providing access to employees of BSC. (Tr. 1284:5-1285:3
(John); John Ex. 17).
143.
Kurys claim that there was no substance involved in characterizing
Abbott as BSCs advisor and that no one was misled is further belied by the December 30
letter, in which Skadden represented to J&Js counsel that DES diligence had been given to BSC
or their advisors when, in fact, it had been given to Abbott. (John Ex. 31) Kury acknowledged
that he received a copy of the letter and that he understood that it referred to information that had
been furnished to Abbott. (Tr. 1138:71138:14 (Kury)). Kury claimed that he did not parse out
the language in the letter, but admitted that he had been advised by Skadden that Guidant could
provide diligence to Abbott without disclosing that fact to J&J. (Tr. 1138:15-1141:11 (Kury)).
Indeed, as John acknowledged, under the terms of the Addendum, Guidant was prohibited from
disclosing to J&J that the information had been furnished to Abbott without first obtaining the
consent of Abbott and BSC. (Kury Ex. 21; Tr. 1374:14-1375:3 (John)).
144.
John attempted to justify the representation in the December 30 letter on
the basis that it was a form prepared by Skaddens corporate group before the Accession
Agreement was signed and before Guidant established the ground rule that potential purchasers
of the assets to be divested had to sign an accession agreement in advance of being furnished
with due diligence. (Tr. 1359:3-1364:11 (John)). John acknowledged, however, that in some
instances when the letter was used it represented that the enclosed materials were provided to
Boston Scientific and that in other instances the letter represented that the materials had been
provided to Boston Scientific or their advisors. (Tr. 1373:19-1374:13 (John); compare John
- 68 KL3 3002155.1
Ex. 29 with John Ex. 31). Skadden certainly knew how to modify the form to accurately reflect
to whom the enclosed information was furnished. John testified that he was sure that the fact
that the materials that had been shared with Abbott were being sent to Johnson & Johnson was
discussed with the corporate team (Tr. 1376:23-1377:11 (John)) and that he likely saw the letter
before it was sent. (Tr. 1358:2-1358:20 (John)). Under the circumstances, it is difficult to
believe that the representation that the information had been provided to Boston Scientific or
their advisors was inadvertent and that the use of the same word by which Abbott was falsely
characterized in the Accession Agreement was coincidental.
145.
Finally, there are no documents reflecting the advice Mulaney is claimed
to have provided to Kury. Specifically, Mulaney was unaware of any writing, any email, any
time sheet, any documentation reflecting what, if any, advice he may or may not have given to
Kury prior to December 22 with regard to the rationale that Abbott could receive due diligence.
(Tr. 804:19-805:25 (Mulaney)). Nor did he recall any legal research on the subject, or any
e-mails with his partner Duwe in which he either mentioned that [he was] going to have a call
with Mr. Kury about this topic or did have a call with Kury about this topic. (Tr. 810:5-810:20
(Kury)). Kury also confirmed that he did not know of anything in writing reflecting this
supposed advice. (Tr. 1096:20-1098:3, 1100:23-1103:15, 1243:22-1244:23 (Kury)). During
Mulaneys and Kurys cross-examination, J&J pointed to hundreds of e-mails reflecting legal
advice given by Skadden to Guidant on all sorts of other issues, large and small. (Tr. 820:23827:15 (Mulaney); Tr. 1101:13-1106:16 (Kury); PX 200-A; PX 200-B; PX 201; PX 202).17
17
The Court notes that Skadden was unable to produce any responsive e-mail from the
mailboxes of Mulaney, Duwe or Rhoten, the three primary Skadden corporate attorneys handing
the matter, in response to J&Js production requests, despite the fact that there should have been
litigation holds during the relevant time periods. (PX 41; Tr. 827:16-834:12 (Mulaney)).
- 69 KL3 3002155.1
146.
Given all of these circumstances, the Court is persuaded that the best
evidence of the basis on which Guidant furnished information to Abbott is the contemporaneous
documentary record, i.e., the due diligence ground rules, the Accession Agreement and
Skaddens December 30 letter. Virtually every relevant witness ultimately acknowledged that
this basis the characterization of Abbott as having been retained by Boston Scientific to advise
it in connection with a potential transaction was false. (Tr. 1108:23-1110:10 (Kury); Tr.
271:13-272:25 (OBrien); Tr. 1296:7-1297:23 (John); Gunther Dep. 110:3-110:16, 112:14114:1; Best Dep. 122:12-123:7, 123:9-124:2).
147.
The Court further finds both Kurys testimony that Mulaney advised him
that Abbott was BSCs representative, as well as Mulaneys testimony that he advised Kury that
Abbott was BSCs representative because it was providing financing to BSC and because Abbott
was someone working with BSC in connection with its proposal, to be not credible. This is
affirmative evidence of Guidants guilt. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S.
133, 134 (2000) (in employment discrimination context, the trier of fact can reasonably infer
from the falsity of [an] explanation that the employer is dissembling to cover up a discriminatory
purpose.).
148.
This case illustrates why little weight is given to oral advice of counsel
where, as here, it is sought to be proven years after the fact based only on testimony which may
be affected by faded memories and the forces of contemporaneous litigation. Minn. Mining &
Mfg. Co. v. Johnson & Johnson Orthopaedics, Inc., 976 F.2d 1559, 1580 (Fed. Cir. 1992). That
is particularly true where, as here, there is no documentary evidence corroborating the
occurrence or substance of the supposed advice, and where the testimony concerning such advice
is replete with inconsistencies with previous testimony and documents and does not comport
- 70 KL3 3002155.1
with how one would expect the persons involved to have acted if that advice had truly been
given. Eli Lilly & Co., v. Zenith Goldline Pharm., Inc., No. IP-99-38-C H/K, 2001 WL 1397304,
at *19 (S.D. Ind. Oct. 29, 2001). Under similar circumstances, courts have found that no oral
advice was ever given. See, e.g., Viskase Corp. v. Am. Natl Can Co., 979 F. Supp. 697, 705
(N.D. Ill. 1997), affd, 261 F.3d 1316 (Fed. Cir. 2001) (discounting testimony that oral advice of
counsel was given in absence of any confirming documentary record, and the existence of
documents inconsistent with supposed advice having been rendered).
b.
149.
Pattern of Misconduct
The evidence in this case established not just one breach of the Merger
Agreement but several, as well as contractual commitments by Guidant that were inconsistent
with its obligations under the Merger Agreement. Viewed collectively, along with breaches of
J&Js rights under at least one other agreement, the evidence demonstrates that Guidant engaged
in a pattern of misconduct manifesting a conscious disregard of J&Js rights under the Merger
Agreement.
(i)
150.
Solicitation
As discussed, the preponderance of evidence shows that on October 27, JP
Morgan banker Stute traveled to Boston to meet with BSC CFO Best and that during that
meeting Stute solicited a competing takeover proposal from BSC, in violation of 4.02(a) of the
Merger Agreement.
The conduct of Guidants Representatives is expressly imputed to
Guidant under 4.02(a).

(ii)
151.
BSC-GDT Confidentiality Agreement
Also as noted, Guidant breached 4.02(a) by furnishing information to
BSC pursuant to a confidentiality agreement less restrictive to BSC than the confidentiality
provisions of the J&J-GDT Confidentiality Agreement. Guidants attempt to justify this breach
- 71 KL3 3002155.1
was filled with contradictory testimony and frivolous post hoc rationales that only served to
illustrate its willfulness.
152.
Kury testified, with respect to adding potential purchasers to the
definition of representatives with whom BSC could share Guidant information, that he would
have asked, is this language necessary, appropriate or otherwise any kind of a problem. (Tr.
1063:1-1063:8 (Kury)). He could not testify to a specific conversation with a specific person
with whom he had this supposed conversation, but speculated that it would have been with
Mulaney or Duwe. (Tr. 1063:9-1064:14 (Kury)). Neither Mulaney nor Duwe recalled having
any such a conversation. (Tr. 758:9-758:16 (Mulaney); Duwe Dep. 21:19-23:19).
153.
Kury also testified that he thought Skaddens rationale for why adding
potential purchasers to the BSC-GDT Confidentiality Agreement would not violate the Merger
Agreement was that the definition of Representatives in the J&J-GDT Confidentiality
Agreement would properly be interpreted to include potential purchasers of assets to be divested.
(Tr. 1064:6-1065:7 (Kury)). This supposed rationale is inconsistent with Duwes statement in
his December 7 e-mail to Kury that Shearman wanted to add to the term Representatives with
whom they can share information third parties reasonably acceptable to Guidant who [BSC]
identifies as potential purchasers of the assets to be divested. (Duwe Ex. 1) (emphasis
added). Kurys explanation that they were [a]dding language, but not necessarily adding
meaning is implausible. (Tr. 1070:21-1070:25 (Kury)).
154.
Kury also claimed that he understood from Duwes e-mail that the
proposed change had Skaddens blessing. (Tr. 1067:3-1069:3 (Kury)). But the e-mail, which
states that Ian and Neal are OK with the addition to representatives described and the other
changes are fine with me, does not indicate whether Skadden was okay with the changes
- 72 KL3 3002155.1
solely from an antitrust perspective or from a contractual one as well. (Duwe Ex. 1). Kury
acknowledged that at deposition he had testified that he understood the e-mail to say that Stoll
and John were okay with that change from an antitrust perspective. (Tr. 1069:4-10-1069:13
(Kury)). Mulaney likewise testified that he understood Duwe to say that Stoll and John had
concluded on behalf of Skadden that the change was okay from an antitrust perspective, and not
that it was permissible under 4.02(a). (Tr. 760:25-761:17 (Mulaney)). Stoll and John also both
testified that they did not review the BSC-GDT Confidentiality Agreement for compliance with
the Merger Agreement. (Stoll Dep. 26:2-26:10, 81:7-81:15; Tr. 1275:24-1276:2 (John)).18
155.
Kurys understanding of Skaddens rationale as to why adding potential
purchasers to the definition of Representatives would not violate the Merger Agreement is
also inconsistent with what Mulaney claimed was his rationale. Mulaney testified that it was his
view that the definition of Representatives in the J&J-GDT Confidentiality Agreement was not
a confidentiality provision (Tr. 726:12-727:2 (Mulaney)) and that, according to him, adding
potential purchasers to the definition of Representatives in the BSC-GDT Confidentiality
Agreement did not make that agreement less restrictive than the confidentiality provisions in
the J&J-GDT Confidentiality Agreement. (Tr. 729:17-730:25 (Mulaney)).
18
Mulaney testified that by his e-mail Mr. Duwe is telling Mr. Kury that Skadden
approves this document and he can execute it and that when we provide the client with a
document and say its ready for signature we can get it wrapped up, we are approving it. We are
saying whats being done are consistent with your obligations under the merger agreement.
(Tr. 762:6-763:17 (Mulaney)). But Duwe did not say in his e-mail that Skadden approves this
document, or that its ready for signature we can get it wrapped up, or that whats being
done is consistent with your obligations under the merger agreement. What Duwe said was If
you are ok with the changes, we will get it wrapped up. (Duwe Ex. 1) (emphasis added). Duwe
testified that he did not recall giving any consideration to whether the BSC-GDT Confidentiality
Agreement was consistent with Guidants obligations under the Merger Agreement, nor did he
recall having any discussions internally at Skadden or with Guidant on that subject. (Duwe Dep.
23:5-25:5, 25:8-31:15).
- 73 KL3 3002155.1
156.
So interpreted, once information is in the hands of a person making a
Takeover Proposal, that person is permitted to give the information to another party, even one
that does not fall within the definition of Representatives in the Merger Agreement, so long as
the information is being used for the formulation of a business transaction and is otherwise kept
confidential. (Tr. 729:17-730:25 (Mulaney)). From this, Mulaney reasoned that, if Guidant can
give the information to Boston Scientific and Boston Scientific can give it to Abbott, then I do
not believe the merger agreement is violated if, at Boston Scientifics request, Guidant gives
information to Abbott itself. (Tr. 731:11-731:20 (Mulaney)). According to Mulaney, the
definition of Representatives in the Merger Agreement simply provides more fulsome
permission to Guidant to furnish information to representatives of the person making the
takeover proposal. (Tr. 733:19-735:5 (Mulaney)).
157.
In his trial testimony affidavit, Mulaney implied that he conveyed this
rationale to Kury. (Mulaney Aff. 16-17 (DX 167)). Kury, likewise suggested in his trial
testimony affidavit that he shared Mulaneys view regarding the import of the term
confidentiality provisions. (Kury Aff. 19(a) (DX 166)). Under cross-examination, however,
Mulaney admitted that he did not recall ever advising Kury that this was a basis for providing
diligence to Abbott. (Tr. 783:14-785:5 (Mulaney)). When asked about this rationale appearing
in his trial testimony affidavit, Kury appeared to have no idea what it was referring to, testifying
that I dont know that I remember the analysis on that and that it was some technical point
that Im not understanding. (Tr. 1076:8-1080:22 (Kury)). Mulaneys uncommunicated legal
theory is irrelevant to whether Guidants breach was willful. Eco Mfg. LLC v. Honeywell Intl,
Inc., No. 03 CV-0170-DFH, 2003 WL 1888988, at *6 (S.D. Ind. Apr. 11, 2003) (The facts of
consequence to the determination of a claim of willful [breach] relate to the [breaching partys]
- 74 KL3 3002155.1
state of mind. Counsels mental impressions, conclusions, opinions or legal theories are not
probative of that state of mind unless they have been communicated to that client.) (internal
citation and quotation marks omitted).
158.
Mulaney also claimed that his interpretation of the J&J-GDT
Confidentiality Agreement and its ability to provide diligence to Abbott under 4.02 was based
in part on his belief that J&J had provided Guidant information to Abbott relating to Guidants
DES program in connection with J&Js divestiture efforts and pursuant to the J&J-GDT
Confidentiality Agreement.
(Tr. 732:2-733:18, 770:9-771:16 (Mulaney)).
But on cross-
examination, Mulaney admitted that he had no personal knowledge of whether or not J&J ever
gave any confidential Guidant information to Abbott.
(Tr. 1005:15-1008:17 (Mulaney)).
Moreover, J&J presented evidence showing that the only information that J&J shared with
Abbott was a discussion of a publicly available patent and that J&J did so after requesting and
receiving Guidants express consent. (Morano Dep. 58:11-59:14, 59:16-59:19, 60:15-62:9).
Guidant, through J.P. Morgan, entered into separate confidentiality agreements with potential
divestiture purchasers by which Guidant presumably furnished them with information.
(Rosenberg Ex. 27). Mulaney admitted that he was not aware of these facts when he testified
about this supposed rationale for his interpretation of the J&J-GDT Confidentiality Agreement.
(Tr. 1008:18-1010:25 (Mulaney)).
(iii)
159.
The Addendum
In the Addendum, Guidant bound itself not to disclose the identity of
potential purchasers of the assets to be divested. Guidant made this agreement in the face of the
provisions of 4.02(c) of the Merger Agreement imposing obligations on Guidant to make
disclosures to J&J regarding competing takeover proposals.
- 75 KL3 3002155.1
160.
John testified that when Shearman proposed adding this provision to the
Addendum Skadden sent back a revision that would have permitted such disclosure if required
by law or pre-existing agreements. (Kury Ex. 19; Tr. 1278:13-1279:23 (John)). In an effort to
explain why Guidant ultimately agreed to remove the exception for pre-existing agreements,
John claimed that this provision had been inserted to address Guidants need to disclose
information to the FTC and to Guidants advisors.
(Tr. 1279:16-1279:19, 1280:7-1281:19
(John)). But John acknowledged that Guidant did not have any pre-existing agreements with the
FTC that would require Guidant to disclose the identity of potential purchasers of the assets to be
divested and that the potential for disclosures to the FTC was addressed in the phrase if required
by law. He further acknowledged that Guidants need to disclose such information to its
advisors was addressed by separate language providing that the Company may disclose such
information to its representatives.
(Tr. 1280:7-1281:19 (John)).
John testified that the
negotiation of the Addendum was coordinated with the corporate team (Tr. 1376:3-1376:7
(John)), that he believed at the time that the corporate team was taking Guidants obligations
under the Merger Agreement into account (Tr. 1351:15-1352:19 (John)), and that he was not the
person who put the proposed pre-existing agreements exception into the document. (Tr.
1281:20-1281:23 (John)).
161.
The record clearly reflects that the pre-existing agreements exception
was introduced to address Guidants concerns related to its disclosure obligations under
4.02(c). As Shearman partner OBrien and BSC inside counsel Knopf testified, Abbott did not
want its identity disclosed to J&J because it had an agreement with J&J to get a license for
Guidants DES if J&Js deal with Guidant was consummated. (Tr. 267:23-268:6, 269:17-270:1,
296:19-297:4 (OBrien); Knopf Dep. 101:1-105:7). Handwritten notes of Skadden corporate
- 76 KL3 3002155.1
associate Rhoten reflect that on December 14, the day Shearman proposed adding the nondisclosure language, Skadden learned that Shearman partner OBrien was concerned that J&J
would queer the deal if it learned the identity of BSCs prospective divestiture buyer.
(Mulaney Ex. 7, at SA 00034206). Handwritten notes of Skadden antitrust associate Cenedella
of that same day reflect discussion about whether names need to be disclosed to J&J. (DX
218, at SA 00039976).19
The following day, Skadden sent Shearman a mark-up of the
Addendum proposing the pre-existing agreement exception. (Kury Ex. 19).

162.
Kury does not recall asking any questions or receiving any advice about
the Addendum. (Tr. 1086:8-1086:25 (Kury)). He testified, however, that Guidant had no
intention or expectation that it would be violating the Merger Agreement either because it would
not have a legal obligation to disclose the identity of potential purchasers of the assets to be
divested or, if Guidant thought that it had an obligation to disclose, it could have gone to BSC
and the prospective divestiture buyer and said you have to consent to this or we cant do the
deal with you. (Tr. 1134:17-1135:2 (Kury)). While that may be something that Guidant should
have done, it is not what Guidant chose to do. Instead, to avoid its disclosure obligations,
Guidant insisted on characterizing Abbott as BSCs representative on the false pretext that
Abbott had been retained to advise BSC. That Guidant, after first objecting, signed an agreement
subjecting its ability to comply with its disclosure obligations to J&J to the consent of a party
that it knew would not agree is further evidence of Guidants preparedness to knowingly breach
the Merger Agreement.
19
Guidant introduced Cenedellas notes into evidence to show that Mulaney advised Kury
that Guidant did not need to disclose the identity of potential divestiture buyers, pointing to a
note beside Mulaneys initials (CM) stating What thinking on buyers whether names need
to be disclosed to J&J, and a second note stating preliminarily dont think we need to
disclose. (DX 218, at SA 00039976). Mulaney, however, testified that he did not recall the
conversation and could not clarify whether he raised the question or gave the indicated response.
(Tr. 978:20-981:18 (Mulaney)).
- 77 KL3 3002155.1
(iv)
163.
The Co-Promotion Agreement
Perhaps the clearest example of Guidants state of mind with respect to its
contractual obligations to J&J is how it responded to Abbotts request for access to the CoPromotion Agreement. At trial, Kury attempted to brush off any implication that he condoned
Duwes obvious breach of the confidentiality provision in that agreement, testifying that he was
not heavily involved in the issue and that he was relying on Skadden for the detailed
critique. (Tr. 1120:23-1125:15 (Kury)). On cross-examination, Kury acknowledged that
Skadden did not give him a detailed critique but nonetheless testified that he thought that he
had Skaddens approval. (Id.). But there was nothing to approve by the time Kury received
Duwes e-mail, because Duwe had already disclosed the information to Abbotts counsel. (PX
9). It is clear from his conduct that Duwe did not understand Kurys ?? (Id.) as soliciting his
legal advice so much as a request to solve the problem, which he did by breaching Guidants
confidentiality obligations under the Co-Promotion Agreement.
164.
Kurys attempt to distance himself from the issue as one in which he did
not invest much time is belied by the documentary record, which shows that in the days leading
up to Duwes disclosure, Kury was focused on the risks associated with meeting Abbotts
demands for various intellectual property agreements that were subject to confidentiality
provisions, and the Co-Promotion Agreement in particular.
On December 21, 2005, John
informed Kury that Abbott had threatened to walk from the deal if it was not given access to
Guidants IP license agreements, including the Co-Promotion Agreement, but that there were
issues related to the agreements confidentiality provisions. (John Ex. 20, at GDT 00345049).
The following day, Kury sent an e-mail to Guidants CIO McConnell, copying John, reporting
on a call that he had with BSC GC Sandman complaining that the flow of documents into the
data room was quite constricted. (John Ex. 13). John responded by reminding Kury that [w]e
- 78 KL3 3002155.1
continue to need to consider, however, the confidentiality clauses in the license and related
agreements, in particular the limitations imposed by the [J&J] Agreements, and suggesting that
he, Kury, Duwe, and Guidant in-house counsel Lapke meet to discuss the various risks of
meeting [BSCs and Abbotts] requests to share those agreement[s] with in-house counsel.
(Id.). Kury responded by suggesting that for contracts with confidentiality clauses maybe we do
what we did with JNJ and disclose them only at the end. (Kury Ex. 72, at GDT 00345054).
The following day, GDT ACS President Capek sent an e-mail to John and Kury asking whether
Abbott has asked about the copromotion agreement and its transferability. (John Ex. 20, at
GDT 00345048). John replied in an e-mail to Capek and Kury, reporting that the Co-Promotion
Agreement had been put in the data room. (Id.).
165.
This was not a new issue to Kury. Earlier in December, when BSC was
seeking access to Guidants intellectual property agreements, Guidant in-house counsel Lapke
sent an e-mail to Kury advising him that [m]y recollection is that the JNJ license agreement (not
the co-promotion agreement) provides that we can send to a third without the need for consent if
the third party is contemplating purchasing substantially all of the assets of ACS. If that is the
case, I would see no reason why [they] couldnt get the license agreements. (John Ex. 24, at
GDT 00345956) (emphasis added).
166.
Given these documents, Kurys suggestion that he was unaware of the
requirement that Guidant receive J&Js consent before the terms of the Co-Promotion Agreement
were disclosed is not credible. The evidence demonstrates that it did not matter to Kury that
Lapke, John, and McConnell had all told him that disclosure of the Co-Promotion Agreement
was subject to confidentiality restrictions. Instead of telling McConnell no, we cannot breach
our contractual obligations Kury handed the issue off to Duwe, who promptly disclosed the
- 79 KL3 3002155.1
information to Abbott. As with so many other decisions that Kury made, J&Js contractual
rights were simply disregarded.
(v)
167.
Regulatory Strategy
As discussed, Guidant entered into an oral joint defense agreement with
Abbott and BSC in violation of 4.02(b), pursuant to which it strategized with BSC and Abbott
about obtaining regulatory approval of BSCs proposed transaction in violation of 4.02(a), and
then withheld from J&J, on the basis of privilege, information that it was obligated to disclose
under 4.02(c). In further violation of 4.02(a), Guidant furnished confidential information
about itself to the FTC. Kury acknowledged, and the Skadden lawyers confirmed, that he
received no advice whatsoever from Skadden that the oral joint defense agreement or the
voluntary provision of documents to the FTC was consistent with the provisions of 4.02. (Tr.
1148:21-1149:3, 1156:9-1156:14 (Kury); Tr. 810:24-812:18, 817:24-818:7 (Mulaney); Stoll
Dep. 28:4-28:20, 45:2-45:11, 59:20-60:1, 67:8-67:11, 59:8-59:13; Tr. 1343:25-1344:4, 1335:251336:13 (John)).
c.
168.
Concealment of Misconduct
That Guidant knew that it had no valid basis under the Merger Agreement
for having furnished information to Abbott is evident from the efforts it made to hide the facts
and its supposed rationale from J&J.
169.
Having committed itself in the Addendum not to disclose the identity of
potential divestiture buyers, Guidant did not tell J&J when BSC identified Abbott as its buyer of
choice of the assets to be divested, nor did it tell J&J that Guidant had entered into an Accession
Agreement with Abbott and that it was furnishing diligence to Abbott. (Tr. 1127:3-1127:13
(Kury)). Not only did Guidant fail to disclose those events, it deliberately misinformed J&J
about the status of BSCs proposal. Among other things, Kury falsely represented to Deyo that
- 80 KL3 3002155.1
Guidant had entered into a confidentiality agreement with BSC that was consistent with
Guidants obligations under the Merger Agreement. (Kury Ex. 14). Skadden falsely represented
to Cravath that due diligence materials that Guidant had provided to Abbott had been provided to
BSC or their advisors, which Kury did not question or object to when he learned of this
misrepresentation. (John Ex. 31; Tr. 1138:7-1140:3 (Kury)). In his December 31 e-mail to Deyo
purporting to update him on the status of BSCs proposal, Kury did not inform Deyo that
Guidant was providing information to Abbott, saying instead that we are continuing to provide
[BSC] with information. (Kury Ex. 36; Tr. 1142:11-1143:3 (Kury)). Kury did not object
when informed that Skadden intended to represent falsely to J&J that they did not know anything
more about BSCs divestiture plans than what was publicly announced if called by J&Js
counsel. (Harris Ex. 12). With Kurys knowledge, when called by Hilton on January 6, Stoll
falsely represented that there had been no discussions about divesting the Co-Promotion
Agreement, and failed to confirm that Abbott was BSCs buyer of the assets to be divested when
Hilton inquired. (Tr. 1319:18-1322:4, 1332:11-1332:22 (John); Tr. 1262:22-1263:6; 1152:21154:5 (Kury)).
170.
That Kury may have been advised by Skadden that Guidant was not
obligated to disclose these events is no excuse. Skadden was plainly complicit in Guidants
knowing breach of the Merger Agreement, having devised and implemented the strategy of
characterizing Abbott as BSCs advisor. Reliance on advice of counsel in furtherance of a
deliberate breach of contract, aimed here at concealing Abbotts role in BSCs Takeover
Proposal, is no defense to a charge that such breach was willful.
171.
Even after J&J learned that Guidant information had been provided to
Abbott, Guidant misled J&J about the basis on which it had done so. When, on January 9, Deyo
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and Hilton first expressed their belief that Guidants provision of diligence to Abbott may have
breached the Merger Agreement, Kury did not tell them that Abbott had been retained to advise
BSC, or that Abbott was BSCs representative. He gave no explanation for Guidants conduct
and failed to get back to Deyo and Hilton as promised. (See 61, 73 to 75, supra).
172.
When Deyo raised the issue again in his January 23 letter, Kury evaded
Deyos request that he explain Guidants basis for furnishing information to Abbott. (See 73 to
75, supra). If Kury thought that there was a valid basis under the Merger Agreement for
Guidant to have provided diligence to Abbott, it would have been simple enough for him to say
so. Instead, with Mulaneys help, he responded with rhetorical arguments and post hoc
rationales having only the slightest bearing on Guidants actual conduct. That Kury was not
forthcoming either on January 9 or on January 23 with Guidants rationale for why it believed
providing diligence to Abbott was permissible under the Merger Agreement indicates that he
knew of no valid basis for Guidant having done so.
d.
173.
Lack of Candor
Many of the inconsistencies and contradictions in the testimony of
Guidants witnesses have been adverted to earlier. (See 131 to 148, supra). Chief among
them is Kurys willingness to change his testimony over the course of this litigation to suit his
counsels then-favored legal theories, which severely undermines the credibility of those
arguments and Kury himself. For instance, as noted, Kury testified twice once at deposition
and once in a sworn declaration submitted to the Court that he had no recollection of
questioning the representation in the Accession Agreement that Abbott had been retained to
advise BSC, but then testified at trial that he thought he did ask someone at Skadden (he cannot
say who) about it and that they told him not to worry about it, it was not a problem. (Tr.
1111:23-1113:14 (Kury)). Kury testified at deposition that he understood Duwes December 7 e- 82 KL3 3002155.1
mail to say that Stoll and John were okay, from an antitrust perspective only, with adding
potential purchasers to the definition of Representatives in the BSC-GDT Confidentiality
Agreement and then testified at trial that he did not compartmentalize the advice. (Tr. 1068:91069:19 (Kury)). At deposition Kury testified that he understood Abbott to have been a person
involved in making a Takeover Proposal and then testified at trial that he believed that Abbott
was BSCs representative, and that Abbott being a bidder was not Guidants rationale for
providing diligence to Abbott.
(Tr. 1100:23-1103:3 (Kury)).
And as is detailed
below (see 224, infra), Kurys denial that Hilton and Deyo told him on January 9 that J&J
believed Guidant had breached is contradicted by his own e-mail eight days later asserting that
J&J could [c]laim we breached. (Kury Ex. 74).
174.
Mulaneys and Johns testimony also demonstrated a lack of candor. For
example, Mulaney testified at deposition that he did not even remember receiving Kurys
seriously folks e-mail, yet at trial he claimed he had a conversation with Kury about the
rhetorical nature of his draft response. (Tr. 874:14-876:25 (Mulaney)). John offered a facially
incredible explanation for his willingness to eliminate an exception in the Addendum that would
have allowed disclosure of the identity of divestiture candidates if required by pre-existing
agreement, and his testimony concerning the reason he did not change the representation in the
Accession Agreement regarding Abbott is completely belied by the evidence, including a
conversation with Abbotts Gunther, as to which his alleged lack of recollection is not credible,
and his elevation of the issue to Duwe to work it with OBrien. (See 45, supra).
175.
Guidants failure to call Duwe as a witness is also troubling. The evidence
indicates that Duwe was the person principally responsible for negotiating the various
agreements pursuant to which Guidant furnished information to Abbott as a representative of
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BSC. Duwe negotiated the BSC-GDT Confidentiality Agreement and specifically the addition
of potential purchasers to the definition of Representatives to whom BSC could give
Guidant information. (Duwe Ex. 1). Duwe negotiated the Addendum, in which Guidant agreed
not to disclose the identity of potential purchasers of the assets to be divested. (Kury Exs. 17,
18). It was Duwe who conveyed the corporate teams input into Guidants due diligence ground
rules and who responded when Stoll asked for guidance about whether diligence would be
provided to Abbott before Guidant entered into a stock purchase agreement with BSC. (Duwe
Ex. 5). And it was to Duwe to whom John elevated OBriens objection to describing Abbott in
the Accession Agreement as having been retained to advise BSC. (Duwe Ex. 9). Kury himself
acknowledged that he moved Mulaney out of the way so that Duwe could do the work on the
deal. (PX 52; Tr. 1221:5-1221:21 (Kury)).
176.
Duwe was thus uniquely positioned to provide testimony about his
discussions with Kury on these subjects and others and he was certainly available to testify at
Guidants insistence, although he resides outside of the Courts jurisdiction and could not be
subpoenaed by J&J. Guidants decision not to call Duwe gives rise to an inference that his
testimony would not have been helpful to Guidant. Chevron Corp., v. Donziger, 974 F. Supp. 2d
362, 700-02 (S.D.N.Y. 2014) (an adverse inference may be appropriate based on the failure to
testify of someone closely allied with or related to a party; drawing inference that testimony of
local counsel instrumental in procuring a fraudulent judgment in a foreign jurisdiction would
have been adverse to defendant) stay granted, No. 11 cv. 0691 (LAK), 2014 WL 1663119
(S.D.N.Y. Apr. 25, 2014). The fact that designated portions of Duwes deposition testimony
were offered in evidence does not alter the Courts view. Indeed, in that testimony Duwe
steadfastly professed to have no recollection related to any topic of consequence about which he
- 84 KL3 3002155.1
was asked, from which the Court infers that any truthful testimony that he could give with
respect to those subjects would reflect poorly on himself, his partners and Guidant. See, e.g.,
Jasco Tools v. Dana Corp., 574 F.3d 129, 155 (2d Cir. 2009) (inferring that witnesss assertion
that he did not remember phone call was designed to conceal the subject matter of those
conversations).
177.
For example, Duwe testified that he did not recall: (a) the specific legal
advice Skadden gave to Kury as to how Abbott could receive due diligence under the terms of
the J&J-GDT Merger Agreement (Duwe Dep. 11:2-11:16, 12:18-13:1); (b) considering or
discussing whether the BSC-GDT Confidentiality Agreement was consistent with the terms of
the J&J-GDT Merger Agreement (Duwe Dep. 23:5-24:1); (c) if he had any discussions with
Guidant or internally at Skadden about adding potential purchasers of the assets to be divested to
the definition of Representatives in the BSC-GDT Confidentiality Agreement (Duwe Dep.
39:17-39:23, 40:5-40:11, 22:10-31:15); (d) discussing the representation in the Accession
Agreement that Abbott had been retained to advise BSC (Duwe Dep. 87:2-88:22); (e) that John
had asked him to work the issue of characterizing Abbott as having been retained to advise
BSC with OBrien and Simpson Thacher (Id.); (f) whether, based on his understanding at the
time, characterizing Abbott as having been retained to advise BSC was a misrepresentation
(Duwe Dep. 88:23-89:15); and (g) what he thought Abbotts relationship was with BSC when
Guidant began furnishing Abbott with due diligence (Duwe Dep. 91:18-92:8).
178.
As discussed, the Court did not find Mulaneys and Kurys testimony
regarding the supposed advice that Mulaney gave to Kury credible. The remarkable lack of
candor in the testimony given by Kury, Mulaney, John, and Duwe is compelling evidence that
- 85 KL3 3002155.1
Guidants breach was deliberate and that Guidant lacked any good faith basis to believe that its
provision of diligence to Abbott was permissible under the Merger Agreement.
e.
179.
Sophistication
Kury was, in Mulaneys words, a very experienced lawyer. A former
[M&A] partner of [Dewey] Ballantine . . . experienced in public company deals, experienced in

merger agreements, he knows about no solicit provisions; he knows about superior proposal[s];
he knows about confidentiality agreements. (Tr. 762:6-762:19 (Mulaney)). With that depth of
experience and expertise, it is impossible to believe that he innocently relied on advice from
Skadden that, if given, would have been patently unreasonable.
180.
Kury testified in his trial affidavit that it was his practice to review
documents presented to him in draft form or for signing critically and to ask whatever questions
he had. (Kury Aff. 5 (DX 166)). But when called to account for the legal and practical
implications of these documents, Kury consistently claimed to have no independent
understanding, apart from the advice that he supposedly received from Skadden. From his own
testimony, it is clear that Kury has no specific recollection of receiving any express advice of
counsel concerning the BSC-GDT Confidentiality Agreement (Tr. 1063:1-1063:8 (Kury)
(surmising that I think I would have asked for advice)); the Addendum (Tr. 1086:8-1086:25
(Kury) (acknowledging that he has no recollection of asking any questions or getting any advice
from Skadden)); or the Accession Agreement (Tr. 1111:20-1113:15 (Kury) (acknowledging that
he had twice previously testified to having no recollection of questioning the representation in
the Accession Agreement that Abbott had been retained to advise BSC)). Instead he claimed he
merely assumed that because those documents were presented for his signature, they reflected a
judgment by Skadden that they were consistent with Guidants legal obligations. As for the
- 86 KL3 3002155.1
December 30 letter and his January 23 e-mail to Deyo, Kury testified that he did not parse the
documents and relied on Skadden. (Tr. 1140:25-1411:11, 1178:24-1179:6 (Kury)).
181.
By the contracts that Kury signed, Guidant among other things, (i) agreed
to allow BSC to share Guidant information with potential purchasers of the assets to be divested,
in violation of 4.02(a); (ii) agreed not to disclose the identity or existence of potential
purchasers of the assets to be divested, even if required to do so under 4.02(c); and (iii) falsely
represented that Abbott was BSCs advisor, a pretext used by Guidant to furnish information to
Abbott in violation of 4.02(a) and to conceal Abbotts role in BSCs Takeover Proposal from
J&J in violation of 4.02(c). Given the obvious risk of breach that executing those documents
entailed, it would not have been objectively reasonable for Kury to rely on implicit advice of
counsel with no written analysis even if that advice had been given. McDermott v. Omid Intl,
723 F. Supp. 1228, 1233 (S.D. Ohio 1988) (finding willful patent infringement where the issue
of infringement was of sufficient importance that a prudent person would have requested a
written opinion.), affd, 883 F.2d 1026 (Fed. Cir. 1989).
182.
In light of Kurys experience, legal training, and awareness of Guidants
legal obligations to J&J, he could not have reasonably believed that a court would endorse the
provision of diligence to Abbott on the basis that it was a potential source of financing for BSC
or was otherwise BSCs representative. Ortho Pharm. Corp. v. Smith, 959 F.2d 936, 944 (Fed.
Cir. 1992) (willfulness determination ultimately turns on reasonableness of breaching partys
belief that his conduct would be endorsed by a court). Kury admitted that he did not understand
the technical analysis of why furnishing information to Abbott was supposedly permissible
under the Merger Agreement. (Tr. 1098:4-1100:9 (Kury)). Had he done such an analysis he
surely would have seen the obvious shortcomings in Mulaneys supposed advice, most notably
- 87 KL3 3002155.1
that, as Judge Lynch has held, the definition of Representatives cannot reasonably be
interpreted to include divestiture parties or potential financing sources under the common sense
principle of ejusdem generis, with which Kury was no doubt familiar. J&J Dismissal Decision,
525 F. Supp. 2d at 348-49.
f.
183.
Conclusion
Guidant found itself in an unexpected predicament when, after agreeing to
sell itself for what it considered a low $63 per share and opening the door for a competing
proposal from BSC, which was no surprise to Guidant (see Kury Ex. 10), BSC insisted that
Guidant furnish information to Abbott before BSC would make a definitive offer. In Kurys
words, at that point Guidant had a concrete problem. (Tr. 1135:3-1135:23 (Kury)). Guidant
had not intended to provide divestiture candidates with due diligence before a binding merger
agreement was signed until BSC began putting tremendous pressure on Guidant to do so and
Abbott threatened to walk from the deal if it was not given the access it demanded. (John Ex.
20, at GDT 00345049; John Ex. 21). Heeding BSC Chairman Nicholas demand that he start
kicking butt, Guidant GC Kury instructed Skadden to find a way to accommodate Abbott.
(John Ex. 21, at GDT 00352063).
184.
For Guidant and the lawyers at Skadden, the problem was that, just two
days before, BSC had extracted from Guidant an agreement that it not disclose the existence or
name of any potential purchaser of the assets to be divested without the prior written consent of
BSC and such third party, even if Guidant was required to do so by pre-existing contract.
Guidant knew that it could not furnish information to Abbott as a person making a Takeover
Proposal because doing so would trigger Guidants disclosure obligations under 4.02(c).
Abbott had made clear that it would not participate in BSCs proposal if its involvement might
be revealed to J&J before the BSC transaction became definite. Guidants only option under the
- 88 KL3 3002155.1
Merger Agreement, if it wanted BSCs proposal to go forward, was to furnish information to

Abbott as a Representative of BSC. Mulaney effectively admitted as much, testifying that
allowing BSC to characterize Abbott as its representative solved any notice requirement. (Tr.
941:9-942:15 (Mulaney)). Describing Abbott as BSCs advisor, a characterization that both
Kury and the Skadden lawyers knew was false, was used as a pretext for furnishing diligence to
Abbott, rather than a genuine basis for decision-making. C.f. In re Hayes Microcomputer Prods.
Patent Litig., 982 1527, 1544 (Fed. Cir. 1992) (discounting advice of counsel used as protective
device and as a basis for forming a patent defense group rather than a genuine basis for
decision-making).
3.
185.
Materiality
As Judge Lynch noted earlier in this litigation, [m]aterial unlike
willful, is a well-defined term in the law of contracts and in Indiana law. A material breach is
one that goes to the very heart of the agreement. J&J Dismissal Decision, 525 F. Supp. 2d at
354 (quoting City of Indianapolis v. Twin Lakes Enter., Inc., 568 N.E.2d 1073, 1080 (Ind. Ct.
App. 1991).
186.
Section 4.02 was a material term of the Merger Agreement to both parties.
Of principal importance to Guidant was a right to consider superior proposals. (Mulaney Aff.
18, 20, 26 (DX 167)). Of primary importance to J&J were limitations on Guidants ability to
solicit, encourage or otherwise facilitate such proposals, and to be given notice of any proposals
that Guidant received. (Townsend Aff. 15, 21 (PX 20)). The terms of 4.02 were heavily
negotiated, including the no-facilitation and disclosure provisions. (Townsend Aff. 14-19 (PX
20)).
- 89 KL3 3002155.1
187.
The purpose of the limitations on BSCs ability to solicit or respond to a
Takeover Proposal was to protect J&Js binding agreement from being used by Guidant as a
stalking horse to attract other offers before the Merger Agreement was put to a shareholder vote.
See Nacco Indus. Inc. v. Applica Inc., 997 A.2d 1, 19 (Del. Ch. 2009) (Parties bargain for
provisions in acquisition agreements because those provisions mean something. Bidders in
particular secure rights under acquisition agreements to protect themselves against being used as
a stalking horse and as consideration for making target-specific investments of time and
resources in particular acquisitions. Target entities secure important rights as well. It is critical
to our law that those bargained for rights be enforced, both through equitable remedies such as
injunctive relief and specific performance, and, in the appropriate case, through monetary
remedies including awards of damages.).
188.
Guidant understood the importance of these protections to J&J. Mulaney,
who negotiated 4.02 on behalf of Guidant, testified that he understood J&Js intent was to
achieve the purpose of requiring Guidant and anyone working with them to be passive and not to
solicit.
(Tr. 1000:15-1000:24 (Mulaney)).
He further testified to understanding that J&J
wanted a no-solicitation provision that worked; not one that was a piece of Swiss cheese. (Tr.
1023:1-1024:8 (Mulaney)).
In that regard he acknowledged that the definition of
Representatives in the Merger Agreement was relevant and important to J&J. (Id.). Indeed,
on December 7, two days after Guidant received BSCs tentative proposal, Mulaney advised
Guidants Board of Directors in writing that Guidant is generally prohibited from . . .
facilitating a third party takeover proposal . . . . (Kury Ex. 65, at SA 00102680).
189.
Nonetheless, Guidant argues that its breaches of 4.02 were not material
because they did not go to the heart of the parties bargain, which Guidant contends was merely
- 90 KL3 3002155.1
that Guidants Board of Directors would recommend to its shareholders approval of J&Js
proposal to acquire Guidant unless it received a superior, unsolicited, Takeover Proposal, in
which case J&J would receive a last look and, if such a proposal were ultimately accepted by
Guidant, J&J would receive a termination fee. On its own terms, Guidants take on what
constituted the heart of the bargain dooms Guidants defense because the preponderance of
evidence indicates that Guidant, through its investment bankers at JP Morgan, solicited BSCs
Takeover Proposal, which would preclude Guidant from even considering BSCs offer.
190.
Guidant also ignores the prohibition in 4.02(a) on taking any other
action designed to, or which could reasonably be expected to, facilitate, any Takeover Proposal .
. . . (Kury Ex. 9, 4.02(a), at SA 00026226). In the context of a merger between public
companies like J&J and Guidant, the no-facilitation clause is often a more important safeguard of
a bidders rights than the no-solicitation clause, because once such a deal is publicly announced
there is no need to solicit a competing offer. (Coates Aff. 22 (PX 15)). Without a nofacilitation clause, a target would be free to take whatever steps it wanted to assist a person
making an inquiry or proposal to come forward with an actual offer. For instance, a target could
arrange financing for a bidder, negotiate with regulators on behalf of a bidders transaction, or
provide unrestricted access to its most highly confidential information. In this case, Guidants
breaches enabled BSC to make a definitive offer that it otherwise would not have made (see 57
to 58, supra and 197, infra); gave BSC a basis to persuade Guidant that it could obtain
prompt antitrust approvals (see 72, supra); and allowed BSC to revise its offer to make it
acceptable to Guidants Board as a Superior Proposal (see 71, supra). Each of these breaches
led to Guidants decision to terminate the Merger Agreement and deprive J&J of the benefit of
its bargain.
- 91 KL3 3002155.1
191.
Guidants argument that J&J got what it bargained for when it was given a
last look to bid against a competing proposal also ignores the fact that because J&J was forced
to bid against an offer that would not have come forward but for the breach, Guidants
facilitation of BSCs proposal defeated the underlying purpose of the agreement, which was to
effect a merger between the two companies. (Tr. 342:1-342:19 (Townsend)). In responding to a
Takeover Proposal, Guidant was required to comply with the provisions of 4.02 and do no
more than the specific actions permitted under the Merger Agreement. (Townsend Aff. 21 (PX
20)). In all other respects it was contractually obligated to use its reasonable best efforts to
consummate a merger with J&J. (Kury Ex. 9, 5.03, at SA 00026231-33; Townsend 20 (PX
20)).
192.
The fact that Guidant would have been entitled to provide diligence to
Abbott if Abbott had made a qualifying Takeover Proposal or if Abbott had made a joint
takeover proposal with BSC is irrelevant. J&J Dismissal Decision, 525 F. Supp. 2d at 356
(rejecting as irrelevant Guidants argument that a breach could have been avoided by naming
Abbott in BSCs December 5 proposal). As Judge Lynch held earlier in this case, [a]n easily
preventable breach may nonetheless be material. Id. In this instance, Guidants breach was not
so easily avoided. As the evidence shows, Abbott would only agree to consider purchasing the
assets to be divested if its identity was not disclosed to J&J until an agreement was finalized,
which Guidant would have been required to do had Abbott made a Takeover Proposal either on
its own or as a joint bidder with BSC. (Tr. 267:23-268:6, 269:17-270:1, 296:19-298:1 (OBrien);
Knopf Dep. 101:1-105:7).
193.
Similarly misplaced is Guidants argument that, in essence, J&J merely
suffered an immaterial delay of a couple of weeks in obtaining notice of Abbotts involvement.
- 92 KL3 3002155.1
J&J Dismissal Decision, 525 F. Supp. 2d at 357 n.17 (rejecting argument that plaintiffs claim
is at most a one-month nitpick because Abbotts identity was announced in January,
comparing it to an insider trading defendants arguing that he is innocent because the
information he leaked was publicly disclosed a month later).
That due diligence can be
provided in response to a bid does not imply that it could be provided before one, no matter how
soon after the information is provided a bid is forthcoming. Id. The suggestion that Guidant
merely needed to consider the Accession Agreement a Takeover Proposal for it to have become
one is fantasy. The contrivance of treating Abbott as an advisor and thus a Representative of
BSC was driven by Abbotts refusal to have its identity disclosed to J&J which, as noted,
Guidant would have been required to do if it had chosen to treat the Accession Agreement as
being a Takeover Proposal.
194.
Even if the Court were to find that Abbott did make a Takeover Proposal,
which it surely did not, Guidants failure to inform J&J of that fact was in itself a material
breach. The importance of 4.02(c) is evident from the fact that Guidants rights to respond to a
Takeover Proposal and to terminate the Merger Agreement in the event that it received a
Superior Proposal were expressly subject to Guidants compliance with Section 4.02(c). (Kury
Ex. 9, at SA 00026226-28). Mulaney acknowledged at trial that Guidant was not permitted to
respond to a Takeover Proposal until after it satisfied its disclosure obligations under 4.02(c).
(Tr. 853:10-853:15, 856:7-856:24 (Mulaney)).
195.
The notion that the delay in notifying J&J was of no consequence was
further belied by Deyo, who testified that if J&J had known that Guidant intended to provide
due diligence to Abbott in breach of 4.02 in order to enable BSC to make a definitive offer,
it would have explored ways of stopping this violation. (Deyo Aff. 17 (PX 16)). By the time
- 93 KL3 3002155.1
J&J found out about the breach, Abbott had already received confidential information from
Guidant and the resulting offer from BSC had already been made.
4.
196.
Causation
Under Indiana law, to recover on a breach of contract claim, the alleged
breach must be a cause in fact of the plaintiffs loss Fowler v. Campbell, 612 N.E.2d 596, 601
(Ind. Ct. App. 1993), meaning, that the harm would not have occurred but for the defendants
conduct. Wright v. St. Marys Med. Ctr. of Evansville, Inc., 59 F. Supp. 2d 794, 799 (S.D. Ind.
1999) (citing Daub v. Daub, 629 N.E.2d 873, 877 (Ind. Ct. App. 1994). Thus, as general rule a
plaintiff must prove that, more likely than not, the defendants wrongful act was a cause in fact
of his injury. Id. Guidant contends that J&J failed to meet this burden because it did not prove
that BSC could not have made a Superior Proposal but for Guidants provision of diligence to
Abbott, and because J&J did not prove that Guidants shareholders would have approved the
Merger Agreement.
Neither argument is supported by the record evidence, and the latter
incorrectly shifts the burden from Guidant.

a.
197.
No Offer Without a Breach
J&Js proof of causation rests on two points: that BSC would not have
made a definitive offer without a committed purchaser of the assets to be divested, and that
Abbott would not have committed to purchase the assets to be divested without Guidant first
furnishing it with information about those assets. The evidence as to both is uncontradicted. As
to the former, BSCs CFO Best testified that for BSCs Board of Directors to accept going
forward with a definitive offer, the company had to have a committed sign-on-the-dotted-line
purchaser of the assets to be divested. (Best Dep. 94:5-94:21). As to the latter, Abbotts Board
was told by its CEO that there were major items that must be reviewed with acceptable
outcomes including detailed financial results . . .liabilities, the terms of key agreements (e.g.
- 94 KL3 3002155.1
the J&J co-promotion agreement . . .) and confirming the status of the DES program. (Gunther
Ex. 37, at ABT00000016). And, as previously noted, Abbott had threatened to walk from the
deal if it was not given access to these agreements. (John Ex. 20, at GDT 00345049; Tr.
1292:7-1294:4 (John)). During the January 9 analyst call, BSC CFO Best confirmed that Abbott
was very impressed with the data and what they found during due diligence and that that is
how they came up with the valuation and decision to move forward. (Best Dep. 174:4-176:2).
198.
That BSC could have made an offer without a committed purchaser of the
assets to be divested, and that BSC and Abbott could have explored other ways of proceeding
with an acquisition transaction, is entirely beside the point because there is no evidence that
Abbott and BSC would have pursued those options.
199.
No more persuasive is Guidants assertion that BSC could have made a
Superior Proposal with a divestiture buyer other than Abbott. Indeed, the very evidence that
Guidant cites to try to prove this point reveals the weakness of this argument. The fact that Best
received inquiries about the assets to be divested from private equity investors is not persuasive
because Best dismissed them as only being interested in a bargain basement deal, knowing that
BSC would be forced to sell the assets to satisfy the FTC. (Best Dep. 68:18-69:7). That is
precisely why BSC required a committed buyer before it would make a definitive offer for
Guidant. Indeed the evidence cited by Guidant shows that BSC was thinking in terms of a
divestiture to one of only three companies: Abbott, Medtronic or St. Jude. (Knopf Dep. 37:237:12). As discussed, BSC originally wanted to make a joint bid with Medtronic but Medtronic
was not willing to pay as much as BSC wanted for the assets and Medtronic was not interested in
sharing Guidants drug eluting stent technology, which was a condition on which BSC insisted.
- 95 KL3 3002155.1
There is no evidence indicating that BSC ever pursued discussions with St. Jude or that St. Jude
had any interest in buying the assets to be divested, let alone on terms acceptable to BSC.
b.
200.
Shareholder Approval
Before examining the evidence relating to the likelihood of Guidant
shareholders approving the Merger Agreement, the Court addresses a threshold legal question
concerning the proper allocation of the burden of proof on this point.
201.
J&J points to authority holding that where a partys breach of contract
contributes materially to the non-occurrence of a condition of one of that partys duties, the nonoccurrence is excused and the burden then shifts to the breaching party to prove that the
condition would not have occurred regardless of the breach. See WaveDivision Holdings, LLC v.
Millennium Digital Media Sys. LLC, No. 2993-VCS, 2010 WL 3706624, at *15 & n. 113 (Del.
Ch. Sept. 17, 2010) (WaveDivision) (citing Restatement (Second) Contracts 245 and cmt.
b).20 In WaveDivision, defendant Millennium breached a no-solicitation provision in an asset
purchase agreement by facilitating an alternative refinancing transaction with the same senior
lenders whose consent was required for the asset purchase transaction. Millennium argued that
in light of the alternative deal, the lenders would not have consented to the [original] sale under
any circumstances and that the failure of that condition excuses Millenniums performance
thereby rendering any potential breach . . . moot. Id. at *14. The Chancery Court rejected that
argument, holding that Millenniums . . . contravention of the no solicitation provisions
materially contributed to the lenders failure to consent to the sale and that Millennium was
therefore precluded from using this lack of consent to abrogate its responsibility to compensate
Wave for Millenniums breach.
Id. at *17.
20
Responding to Millenniums argument that
See also, Ixe Banco, S.A. v. MBNA Am. Bank, N.A., No. 07-CV-0432 (LAP), 2009 WL
3124219, at *5-6 (S.D.N.Y. Sept. 29, 2009) (same).
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KL3 3002155.1
application of this principle unfairly shifted the burden of proof on the damages element of
Waves claim, the Court held that under the prevention doctrine once it was established that
Millenniums breach materially contributed to the failure of the condition, the burden was
properly placed on Millennium to prove that the condition would not have been satisfied
regardless of its breach. Id. at *15.
202.
Guidant counters by pointing to a decision of the District Court for the
Southern District of Indiana holding that under Indiana law the burden to prove causation
remains on the plaintiff even if the defendants wrongful act caused the difficulty of proof. See
Wright, 59 F. Supp. 2d at 800). In Wright, plaintiff, a hospital patient, sued the hospital for
failing to preserve a malfunctioning artificial heart valve for use in recovering damages from the
valve manufacturer. Plaintiff argued that the hospital should bear the burden of proving that she
would not have been entitled to recover against the manufacturer had the valve not been lost
since the difficulty of proving such entitlement was caused by the hospitals wrongful act. As
authority for this argument, plaintiff cited an exception to the rule in Indiana that damages for
breach of contract must be proven with relative certainty where it is the defendants breach that
caused the difficulty of proving damages. Id. The District Court rejected this argument, holding
that [q]uestions involving certainty of damages go to the quantum of damages, not to the
element of proximate cause. Id.
203.
Guidants reliance on Wright is misplaced because the case did not
involve application of the prevention doctrine. In Wright, the difficulty in proving damages,
though caused by the defendant, did not result from the defendant materially contributing to a
failure of a condition precedent to its own contractual duties. The prevention doctrine is a wellestablished principle under Indiana law. See, e.g., Niezer v. Todd Realty, Inc., 913 N.E.2d 211,
- 97 KL3 3002155.1
217-18 (Ind. Ct. 2010) (It is the rule in Indiana that a party may not rely on the failure of a
condition precedent to excuse performance where the partys action or inaction caused the
condition to be unfulfilled.) (quotation marks omitted).
Here, Guidants willful breach
materially contributed to the Merger Agreement not being approved by Guidants shareholders
because, but for Guidants provision of diligence to Abbott BSC never would have made a
Superior Proposal, which resulted in Guidant terminating the Merger Agreement and
consequently the Merger Agreement never being put to a shareholder vote.
Accordingly,
Guidant bears the burden of proving that its shareholders would not have approved the Merger
Agreement.
204.
To attempt to meet that burden, Guidant presented expert testimony from
Bradford Cornell, visiting Professor of Finance at the California Institute of Technology, who
opined that it would be unreasonable to assume that J&J would have acquired Guidant for $63.08
per share but for Guidants breach. To support this opinion, Cornell referred the Court to
empirical research offered to show that the emergence of a second bidder for an acquisition
target company reduces the likelihood that the first bidder will end up acquiring the target by
approximately 50% and that final bids in multiple bidder contests are approximately 18% higher
than the initial bid. Cornell also pointed the Court to evidence of an expectation that any
acquisition of Guidant would take place at a price above $63.08 per share once BSC made its
tentative offer, including (i) the fact that Guidants stock began trading at prices above $63 per
share, (ii) predictions among analysts covering Guidant that J&J would need to increase its bid in
order to acquire Guidant, and (iii) testimony by J&J witnesses indicating that J&J thought that it
would likely need to increase its bid. The Court addresses each of these items in turn.
- 98 KL3 3002155.1
(i)
205.
Empirical Research
Cornell referred the Court to research conducted by Sandra Betton and B.
Espen Eckbo that found that when a second bidder emerges in a takeover contest, the original
bidder acquires the target company only 17% of the time and that, on average, the winning bid in
a multiple bid contest is 18% higher than the original bid. (Cornell Aff. 22, Ex. 2 (DX 164)).
Cornell also cited the results of his own empirical research. In his study, Cornell began with a
sample of 576 control transactions involving U.S.-public-company targets between 2002 and
2006. (Jarrell Ex. 2 (Brown Expert Rpt.), at 13). Of these deals, he selected the twenty-nine that
involved multiple bidders and then excluded nine in which the bids of the competing purchasers
never overlapped temporally (one bid was withdrawn before the next was made) and two others
because they [involved] purchases of heavily distressed targets in bankruptcy. (Id.). Of the
remaining eighteen, he initially excluded one additional transaction, the purchase of Reckson
Associates Realty Corp (Reckson) by SL Green Realty, because he believed the competing bid
by Carl Icahn was not serious. (Id. at 13-14). In the seventeen remaining deals, Cornell found
that the original bidder ended up purchasing the target in only six instances, or 35.3% of the
time, and that in all six cases the original bidder increased its original bid by approximately
19% on average.
(Id. at 14).
Applying this 19% premium to J&Js $63.08 bid, Cornell
concluded that J&J may have had to bid in excess of $75.07 per share to acquire Guidant. (Id.).
206.
The problem with Cornells analysis is that it assumes that BSC would
have made a definitive offer for Guidant even if Guidant had not furnished information to
Abbott. Cornell admits that his study does not test what the likelihood would have been of J&J
acquiring Guidant at $63 per share if BSC did not make a definitive offer. (Tr. 1407:25-1408:10
(Cornell)). The seventeen transactions that he used in his study were selected on the basis that a
topping bidder had in fact come forward with an offer. (Tr. 1407:14-1407:24 (Cornell)). Cornell
- 99 KL3 3002155.1
excluded from his original analysis the one transaction in his sample that he knew of where a
potential topping bidder made an expression of interest and then withdrew from bidding
(Reckson) and in that transaction the first bidder acquired the company at the contracted-for
price. (Tr. 1410:3-1411:3, 1413:17-1414:4 (Cornell)). The Betton and Eckbo study likewise did
not differentiate between expressions of interest that resulted in definitive offers and those that
did not. (Tr. 1400:4-1401:9, 1407:25-1408:14 (Cornell)).21
207.
Having determined that BSC would not have made a definitive offer but
for Guidants provision of diligence to Abbott, the empirical research on which Guidant relies is
of little value in resolving the question now before the Court namely, whether Guidant
shareholders would have approved the Merger Agreement had BSC not made a definitive offer.
If anything, the Reckson transaction supports a conclusion that but for Guidants breach J&J
likely would have acquired Guidant at the contracted-for price of $63.08 per share.
(ii)
208.
Trading Prices
Cornell points to the trading prices of Guidants stock after BSC made its
tentative proposal as evidence that market participants believed that J&J would not acquire
Guidant for $63.08 per share. Specifically, Cornell opined that the fact that Guidants stock
traded at prices above $63.08 between December 5, when BSC made its tentative proposal, and
21
At deposition, Cornell testified that the seventeen transactions that he studied were
included in his sample because in each the topping bidder made a definitive offer and that he was
not sure how Reckson made it into his sample because in that instance the topping bidder made a
tentative proposal but never came forward with a definitive offer. (Tr. 1410:12-1413:19
(Cornell)). At trial, Cornell testified that his deposition testimony may have been wrong and that
there could be other transactions like Reckson in his sample but that he could not remember.
(Id.). In any event, his original analysis remains defective because his sample included many, if
not exclusively, transactions in which a topping bidder made a definitive offer. Cornells
inclusion of Reckson in his revised analysis presented at trial did not cure this defect because it
appears that the great majority of the other seventeen transactions included in his sample are
instances in which the topping bidder came forward with a definitive offer and are thus not
representative of what the evidence shows likely would have occurred had Guidant not breached
the Merger Agreement. (Id.).
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KL3 3002155.1
January 8, when BSC made its definitive offer, indicates that market participants did not expect
that J&J would be successful in garnering the requisite shareholder approval at its $63.08 per
share price. (Cornell Aff. 34-35 (DX 164)). Cornell further testified that many arbitrageurs
purchased Guidant stock at a price above $63 per share and that they would be incentivized to
keep BSC in the game. (Cornell Aff. 36-38 (DX 164)).22
209.
Cornell acknowledged, however, that the trading price of Guidants stock
may not reflect the likelihood of Guidant shareholders approving a $63 per share deal with J&J if
BSC did not make a definitive offer. (Tr. 1440:18-1441:11 (Cornell); see also Tr. 217:25-220:8
(Coates) (trading price does not reflect anything particular about the likelihood of the original
deal going through if Boston Scientific in fact fell away because it couldnt get a certain deal
lined up.)). Nor does it reflect what the market would have viewed as the likelihood of the J&J
deal being approved if the market had known that BSCs Board of Directors would not authorize
the company to make a definitive offer without a committed sign on the dotted line divestiture
partner or that BSCs choice of divestiture partner, Abbott, would not agree to purchase the
assets to be divested without conducting due diligence on those assets in a manner that did not
require its identity to be disclosed to J&J. (Tr. 1430:13-1431:19 (Cornell); see also Tr. 217:25220:8 (Coates)). Cornell admitted that if those facts had been known to the market it probably
would have depressed the price of Guidants stock. (Tr. 1430:13-1432:22 (Cornell)).
210.
J&J pointed to the trading prices of Guidants stock as indicating that the
market believed that Guidant shareholders likely would have approved the Merger Agreement if
22
As evidence that Guidants shareholders would not have approved a deal at $63 per share
Guidant also points to two communications from Guidant shareholders to J&J indicating that
they would vote against the revised merger. (Weldon Exs. 1, 2). There is no reason to think that
the views of these two shareholders are indicative of Guidant shareholders as a whole, and there
were millions of Guidant shares outstanding. (Tr. 50:22-51:14 (Weldon)).
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BSC did not make a definitive offer. Specifically, J&Js damages expert Gregg Jarrell, of the
University of Rochesters William E. Simon Graduate School of Business Administration,
opined that the fact that Guidants stock traded up to just under $63 per share immediately after
the re-priced deal was announced is evidence of a market consensus that there was a 90-95%
probability that the merger would close.23 (Tr. 409:13-410:11 (Jarrell)). Jarrell also opined that
the fact that Guidants stock traded well below $63 per share before the re-priced deal was
announced indicates that shareholders, if presented with a choice of approving a $63 per share
deal or holding stock in Guidant as a stand-alone company, would likely choose the former,
anticipating that Guidants stock would trade at its pre-November 14 lows if a deal with J&J was
not approved. (Tr. 407:4-409:8 (Jarrell)). Cornell acknowledged that if BSC walked from the
deal, Guidant shareholders, including arbitrageurs who purchased Guidant stock at prices above
$63 per share, would be faced with the choice of approving the J&J offer at $63 per share or
holding Guidant stock valued on a stand-alone basis. (Tr. 1442:25-1444:18 (Cornell)). He
23
In his direct testimony and expert report, Jarrell did not offer any opinion concerning the
likelihood that Guidants shareholders would have approved the Merger Agreement. On crossexamination, however, he was asked questions related to that subject by Guidants counsel. See,
e.g., (Tr. 360:8-362:7, 367:12-367:25, 373:2-376:12 (Jarrell)). Where, as here, an opposing
party opens the door on cross-examination to matters not touched upon during the direct
examination, a party has the right on redirect to explain, clarify, and fully elicit the question only
partially examined on cross-examination. Reyes v. Morrissey, No. 07 Civ. 2539 (LAP)(DF),
2010 WL 2034531, at *14 (S.D.N.Y. Apr. 21, 2010) (citations and quotation marks omitted).
See also, e.g., United States v. Viola, No. 91 CR 800 (S5) (SJ), 1992 WL 333650, at *3
(E.D.N.Y. Nov. 2, 1992) (advising parties that if certain doors are opened [on crossexamination], the court will permit the Government latitude [on redirect] in completing the
description of events). This rule applies even where the redirect testimony would not otherwise
have been permissible on direct examination. See, e.g., United States v. Bilzerian, 926 F.2d
1285, 1296 (2d Cir. 1991) (allowing redirect testimony that had been prohibited on direct
examination as unduly prejudicial). Following this practice, courts have ruled that redirect
testimony of expert witnesses may go beyond the scope of issues addressed in the experts direct
testimony where the cross-examination opened the door to those issues. See, e.g., United States
v. Wong, 884 F.2d 1537, 1543-44 (2d Cir. 1989) (expert testimony that money was to be used in
drug transaction was admissible on redirect, even though such testimony was not part of experts
direct testimony, because defendant had opened door during cross-examination).
- 102 KL3 3002155.1
further admitted that it is quite rare for shareholders to reject a deal recommended by
management, which would have been required here by 5.01(b) of the Merger Agreement in the
absence of another offer, and that he was not aware of any instance in which shareholders voted
down a transaction at a premium to market that was recommended by management.
(Tr.
1408:15-1409:7 (Cornell)).24 Mulaney acknowledged his admission at his deposition that in a

similar situation, if BSC and Abbott were enjoined from pursuing a transaction, Guidant
shareholders would have approved a $63 per share deal with J&J.
(Tr. 880:4-881:22
(Mulaney)).25 He further admitted that, when the choice for shareholders is a stand-alone
company or a deal that is a premium over market and is recommended for approval by the board,
shareholders will typically approve the premium deal. (Tr. 903:12-903:16) (Mulaney)).
211.
Jarrell also took issue with Cornells interpretation of the post-December 5
trading prices. Observing that, between December 5 and January 8, Guidants stock traded at an
average price of around $67 per share, which is less than halfway between J&Js $63 per share
offer and BSCs $72 per share proposal, Jarrell opined that the post-December 5 trading prices
actually reflect that the market thought that there was about a 1/3 chance that a BSC deal would
close at $72 per share and a 2/3 chance that the J&J deal would close at $63 per share. (Tr.
369:3-369:15, 406:1-406:21 (Jarrell)). Jarrells interpretation of the data is consistent with
contemporaneous characterizations of trading in Guidant stock by some market participants as
24
The Court notes that Guidant shareholders had, in accordance with the Guidant Boards
recommendation, overwhelmingly approved the initial merger agreement on April 27, 2005.
(PX 11, at 7; Kury Ex. 1, at GDT00026955). Guidant offers no basis to conclude that the
Boards recommendation would have been rejected by shareholders. Like Cornell, neither Jarrell
nor Weldon were aware of any instance in which a merger recommended by management and
priced at a premium to market was not approved by the targets shareholders. (Tr. 86:3-86:6
(Weldon); Tr. 371:8-371:19 (Jarrell)).
25
Guidants M&A expert, Brown, who gave similar testimony regarding the likelihood of
shareholder approval (Brown Aff. 43 (DX 163)), likewise acknowledged that he was assuming
that BSC would remain on the scene. (Tr. 679:1-684:1 (Brown)).
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KL3 3002155.1
not reflecting [a] bidding war and as though BSCs bid was not real. (PX 55; Tr. 1429:71429:12 (Cornell)).
212.
In this Courts view, the post-December 5 trading price data on which
Guidant relies is of no value in assessing whether Guidant shareholders would have approved the
Merger Agreement absent a definitive offer from BSC.
On the other hand, the Court is
persuaded that the trading prices shortly after the re-priced Merger Agreement was announced
indicates that the market expected Guidant shareholders to approve a merger with J&J at $63 per
share, absent a competing offer.
(iii)
213.
Analyst Reports
Based on his review of analyst reports published between December 5 and
December 9, Cornell observed that of the eight reports that predicted whether J&Js $63 per
share offer would be successful, all but one predicted that it would not succeed and the one
exception predicted that there was a 50% chance that it would. (Tr. 1422:8-1423:19 (Cornell)).
But none of the analyst reports that Cornell reviewed suggested that the Merger Agreement
would not be approved by Guidant shareholders if BSC decided not to make a definitive offer.
(Tr. 1424:20-1427:7 (Cornell)). J&J on the other hand pointed to a report issued by Lehman
Brothers that did consider this scenario, and it concluded that if BSC walked away from the
transaction, there was a 90% chance that Guidant shareholders would approve a transaction with
J&J at $63 per share and that shareholders would likely perceive BSCs withdrawal as a sign
that JNJ [is] largely justified in its price cut. (PX 54, at AP 00020365).
214.
Cornell challenged the assumption that BSC would walk away after
having made a tentative proposal, speculating about various scenarios that he thought were more
plausible in which he believed Guidant shareholders would likely vote down a $63 per share
offer. For example, he suggested that even if BSC would not have made a definitive offer before
- 104 KL3 3002155.1
the Merger Agreement came to a shareholder vote, it would nonetheless have continued to
express an interest in acquiring Guidant. (Tr. 1388:2-1391:3, 1512:9-1512:23 (Cornell)). But
the likelihood that BSC would have proceeded in the manner imagined by Cornell is pure
conjecture on his part. Guidant presented no evidence on the issue, though BSC Chairman
Nicholas was presumably available to testify about such matters.
(iv)
215.
J&Js Expectations
Finally, Cornell cited testimony given by J&J officers Vice President of
Group Finance Dominic Caruso and CFO Robert Darretta as well as testimony of J&J Assistant
GC Steven Rosenberg, as evidence that J&J believed that it $63.08 per share bid would be
insufficient to acquire Guidant once BSC made its tentative proposal on December 5. (Cornell
Aff. 26-29 (DX 164); Tr. 1418:19-1419:9 (Cornell)). But at most this testimony shows only
that J&J believed that it would likely need to increase its offer if BSC actually made a definitive
offer, not that J&J believed it would need to do so if BSC decided not to proceed. It cannot
reasonably be inferred from the fact that J&Js internal analysis reflected a preparedness to pay
more than $63.08 per share that J&J believed that it needed to do so in the absence of a definitive
offer from BSC. C.f. Shepard v. State Auto. Mut. Ins. Co., 463 F.3d 742, 747-48 (7th Cir. 2006)
To the contrary, Weldon testified that if BSC had not made a definitive offer, J&J would have
gone forward with its offer at $63.08 per share, and in fact J&J did not increase its offer above
that price until after BSC made its definitive offer on January 8. (Tr. 84:7-84:16 (Weldon)).
Weldon also testified that J&J believed that Guidants shareholders likely would have approved
a transaction at $63 per share if BSC did not make a definitive offer. (Tr. 84:17-85:1 (Weldon)).
216.
In sum, the preponderance of evidence shows that BSC would not have
made a definitive offer but for Guidants breach and that Guidant shareholders likely would have
approved the Merger Agreement had BSC not made a definitive offer. Thus even if it was J&Js
- 105 KL3 3002155.1
burden to prove that Guidant shareholders more likely than not would have approved the Merger
Agreement but for Guidants breach, the record evidence amply supports this conclusion.
5.
217.
Estoppel
Guidant separately argues that J&J should be estopped from recovering
damages because J&J had a duty to speak if it believed that Guidant had breached the Merger
Agreement. Guidant asserts that J&J failed to fulfill this duty because, although it took various
actions to cast doubt on the BSC proposal, it did not object to Guidants provision of
confidential information to Abbott or caution Guidant that it faced multi-billion dollar liability in
pursuing the deal with BSC. Instead, Guidant argues, J&J continued to act as if the contract
were still binding, exercised and improved its rights under the contract, and collected the $705
million termination fee as though no breach had occurred. Guidant maintains that if it had been
notified of J&Js intent to treat Guidants conduct as a breach of 4.02, Guidants Board or
shareholders could have pursued alternative means to ensure compliance with the Merger
Agreement, or could have turned down BSCs competing bid.
218.
Guidant points to various aspects of J&Js conduct that, it claims, induced
Guidant to rely on the fact that J&J would not assert a breach of the Merger Agreement.
Specifically, Guidant points to the fact that, after learning that Guidant had provided diligence to
Abbott, J&J (i) requested that Guidant provide it with all the material Abbott had received; (ii)
exercised its last look rights by evaluating its position and submitting its own competing bid; (iii)
entered into two amendments to the Merger Agreement and increased the termination fee that
would be due if Guidant chose to proceed with the BSC proposal; (iv) required Guidant to wait
five business days after BSCs competing offer was deemed superior to terminate its contract
with J&J; (v) publicly stated that it was owed and required Guidant to pay the $705 million
- 106 KL3 3002155.1
termination fee; and (vi) filed a Form 8-K with the SEC stating that the Merger Agreement had
been terminated in accordance with its terms.
219.
This Court previously rejected a nearly identical argument made by
Guidant in support of its motion for summary judgment as well as the underlying premise that
J&J was required to choose between terminating the Merger Agreement or seeking damages.
J&J Summary Judgment Decision, 2014 WL 3728598, at *10-12. Guidant has presented no new
evidence or otherwise given any persuasive reason as to why the Court should reconsider that
ruling.
220.
To satisfy the elements of an equitable estoppel defense under Indiana
law, Guidant must prove that: (i) J&J made a false representation or concealed material facts
with knowledge of the facts and the intent that Guidant would act on that representation or false
concealment; (ii) Guidant lacked knowledge, or the means to know, of the facts; and (iii)
Guidant reasonably and detrimentally relied on J&Js actions. City of New Albany v. Cotner, 919
N.E.2d 125, 133 (Ind. Ct. App. 2009); accord Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128,
141 (7th Cir. 1990).
221.
Estoppel may arise from silence or acquiescence as well as from positive
conduct; however, silence will not form the basis of an estoppel unless the silent party has a duty
to speak. O.K. Sand & Gravel, Inc. v. Martin Marietta Corp., 786 F. Supp. 1442 (S.D. Ind.
1992) (plaintiff not equitably estopped from pursuing its rights under agreement even though it
had information suggesting a potential breach but no actual or constructive knowledge that there
was in fact a breach). Where silence is the ground for the estoppel, there must be evidence that
the party estopped had knowledge of the facts and that other party was ignorant of the truth and
was misled into doing that which he would not have done except for that silence. In re Republic
- 107 KL3 3002155.1
Fabricators, Inc., 104 B.R. 933, 948 (N.D. Ind. 1989); Cotner, 919 N.E.2d at 134 (facts did not
support an argument for estoppel where party asserting estoppel was not without knowledge or
the means of knowledge that opposing party might assert its rights under the contract).
222.
Guidant relies on In re Sassi Corp. for the proposition that, in a
contractual setting, a duty to speak arises when a party knows that another is acting upon an
understanding that differs with its own. 51 B.R. 534, 544 (Bankr. S.D. Ind. 1983) (citing
Seymour Improvement Co. v. Viking Sprinkler Co., 87 Ind. App. 179, 161 N.E. 389, 392 (Ind. Ct.
1928)). But the facts in Sassi are not analogous to those present here. In Sassi, the defendant
was estopped from asserting its rights under the contract because there was clear and
unequivocal evidence that (i) plaintiff had a different understanding of the contracts
requirements, (ii) plaintiffs understanding was conveyed to the defendant on multiple occasions,
in multiple ways, and (iii) defendant admitted that it was aware of plaintiffs understanding and
that it differed from its own. Id. at 543-44. Under those circumstances, the defendant having
remained silent and failing to alert plaintiff about the discrepancy in the parties understanding of
the contract terms could not later assert a claim of breach.
223.
In stark contrast, it was not clear to J&J on January 9 that the parties had a
different understanding of the obligations imposed by 4.02. J&J learned about the provision of
diligence to Abbott on that date while listening in on an analyst call arranged by BSC. At that
point, all that J&J knew was based on a two sentence statement made by BSC CFO Best during
this call. (Tr. 342:20-343:2 (Townsend); Deyo Ex. 22, at JJE00143068). J&J did not know, for
example, why Abbott was given diligence, the nature of the diligence received, or how the
diligence was obtained. While J&J suspected a breach might have occurredindeed, Deyo
testified that he advised Weldon about the events that occurred on January 9 (Tr. 174:7-174:23
- 108 KL3 3002155.1
(Deyo))this limited slice of information was not enough for J&J to assess whether a material
breach had actually occurred and, more importantly, created no duty to assert a breach or cease
negotiations with Guidant.
224.
In any event, Guidants reliance on cases involving an estoppel created by
silence is perplexing. The evidence shows that upon learning that Abbott had been provided due
diligence, J&J did not remain silent but rather immediately communicated its objections about
the provision of diligence when Deyo and Hilton raised the issue with Kury during their January
9 telephone conversation. (Deyo Aff. 13 (PX 16); Hilton Dep. 219:8-222:3). While Kury
testified that he does not recall Deyo raising the issue of breach during their January 9 call, he
does not deny that Deyo did so. (Tr. 1159:9-1160:8 (Kury)). The testimony of Hilton and Deyo
that they raised with Kury the issue of a potential breach by Guidant is corroborated by that of
Cravath partner Townsend, deal counsel to J&J. (Tr. 352:12-353:2 (Townsend)). Guidant
attempted to call into question their testimony by presenting evidence indicating that Kury
promptly communicated to Skadden other issues that had been raised by J&J, citing, for
example, Kurys December 20 e-mail to Skadden relaying a request from J&J for diligence
provided to BSC. (DX 180, at GDT 00345584). But Guidants conduct is not consistent in this
regard. Indeed, the record is replete with examples of Guidant responding to issues raised by
J&J with deceit. (See 168 to 172, supra). Additionally, Guidants position appears to be
contradicted by an e-mail Mr. Kury sent on January 17. On that date, after learning that
Guidants Board had determined that BSCs $80 per share bid was a Superior Proposal, Deyo
sent Kury and Mulaney a press release that J&J intended to issue stating in part that J&J will
consider its alternatives under the existing merger agreement with Guidant. (Kury Ex. 74, at
GDT 00350503). Kury forwarded Deyos e-mail to, among others, Doug Hughes, an investor
- 109 KL3 3002155.1
relations employee of Guidant. (Id.). In response, Hughes asked What are their options under
the merger agreement other than increase their bid walk? (Id.). Kury replied: Claim we
breached. (Id.).
225.
Guidant complains that J&J raised its bid for Guidant twice after learning
that Abbott had received due diligence, resulting in amendments to the Merger Agreement that
increased the termination fee by a total of $80 million, without raising the issue of Guidants
breach either in written correspondence transmitting J&Js increased offers or during
contemporaneous face-to-face meetings between Weldon and Cornelius.
(Tr. 59:6-59:16
(Weldon); Kury Exs. 43, 47; Hilton Ex. 24). As discussed above, J&J certainly had no duty to
speak and, in any event, told Guidant about its concerns during the January 9 call. Additionally,
the Court does not agree with Guidants characterization of J&Js actions as misleading. As
Weldon testified, while he was aware that Deyo believed that Guidant had breached the
Agreement, J&Js priority was acquiring Guidant and he did not think that threatening litigation
would improve J&Js negotiating position.
(Tr. 59:18-60:3, 87:7-88:12 (Weldon)).
Deyo
similarly testified that J&J concluded that threatening litigation would complicate the companys
efforts to acquire Guidant, and that, having raised the issue with Kury, he believed J&J had
remedies under the contract in the event its efforts to acquire Guidant were not successful. (Tr.
130:16-132:8, 163:16-165:1 (Deyo)).26 For its part, Guidant proffered no evidence that either
26
Guidant tried to discredit this testimony by pointing to press reports indicating that in
January 2006, as part of its response to BSCs definitive offer, J&J was threatening to bring
patent litigation against BSC if it acquired Guidant, but did not make any public statements
regarding potential suit for breach of the Merger Agreement. (Harris Ex. 2). The record reflects
however, that Weldon, who was the principle negotiator on behalf of J&J, did not threaten patent
litigation in his communications with Guidants Chairman Cornelius. (Tr. 345:11-347:17
(Townsend); Deyo Ex. 23; Hilton Ex. 24). The record also reflects that press reports indicating
that J&J was threatening patent litigation were inaccurate. (Harris Dep. 12:22-13:16).
- 110 KL3 3002155.1
party conditioned its subsequent negotiations on a renunciation of any and all future legal
action. J&J Summary Judgment Decision, 2014 WL 3728598, at *9-10.
226.
Most fundamentally, Deyo provided written notices to Kury on January
23, and again on January 24, that Kury acknowledged he understood to constitute an assertion by
J&J that Guidant had breached the Merger Agreement. (Tr. 1165:10-1166:17 (Kury); Kury Exs.
50, 52). Kurys reaction, communicated to Mulaney, was that J&Js position was lame, not
only on the merits but also because JNJ would never get the [shareholder] vote to approve its $71
offer. (Kury Ex. 83; Tr. 1217:9-1217:19 (Kury)). Kury admitted that had Deyo sent his
January 23 letter at an earlier date, he would not have done anything differently. (Tr. 1218:141219:2 (Kury)). Where a party relies on something other than the conduct of the party against
which an estoppel is sought, such as the invalidity of a claim, it cannot meet the reliance
requirement of an estoppel defense. See, e.g., Lautzenhiser Tech., LLC v. Sunrise Med. HHG,
Inc., 752 F. Supp. 2d 988, 1011 (S.D. Ind. 2010) (in patent infringement case, material issue of
fact existed as to whether plaintiff lulled defendant into false sense of security or whether
defendant was instead guided by its own legal conclusions about weakness of plaintiffs claims);
Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp., 60 F.3d 770, 776 (2d Cir. 1995) (no reliance
where defendant ignored patentees charges of infringement because of belief that patent was
invalid.).27
227.
In any event, Guidant cannot demonstrate that any supposed reliance on
J&Js affirmative conduct or any supposed silence was detrimental. Guidant asserts that had it
27
If there was any act of concealment that impeded the ability of Guidants Board of
Directors to exercise their duties, it was Kurys failure to inform them that, during their January
9, telephone call Deyo and Hilton had communicated to him that J&J believed Guidant had
breached the Merger Agreement by furnishing information to Abbott. Likewise, if anything
prevented Guidants shareholders from acting differently, it was Guidants failure to disclose in
its proxy statement soliciting shareholder approval of Guidants merger with BSC that J&J had
alleged that Guidant breached. (Tr. 1220:4-1220:12 (Kury)).
- 111 -
KL3 3002155.1
known of J&Js position prior to acceptance of BSCs offer it could have sought a declaratory
judgment, rejected BSCs offer or refused to pay the termination fee. But as Kury himself
acknowledged, Guidant could have taken any of those actions after receipt of the written notice
on January 23 and before it terminated the Merger Agreement on January 25. (Tr. 1219:51220:3 (Kury); Kury Ex. 53). In addition, as this Court has previously observed, by sparking a
bidding war between J&J and BSC in which J&J continued to submit higher bids despite
Guidants alleged breach of the Merger Agreement, Guidants shareholders ended up receiving a
higher price for their shares ($80 per share) than they would have based on either BSCs initial
definitive offer ($72 per share) or J&Js original purchase price under the Merger Agreement
($63 per share). J&J Summary Judgment Decision, 2014 WL 3728598, at *9.
228.
Finally, estoppel is grounded upon equity and good conscience and used to
prevent injustice and unconscionable advantage; it is not available to parties that engage in
deceitful conduct. O.K. Sand & Gravel, 819 F. Supp. 771, 783 (S.D. Ind. 1992) (defendant
ineligible for equitable relief on the basis of waiver or estoppel, though plaintiff had actual
knowledge of alleged breaches, because it had refused to provide additional information that may
have made the alleged breaches more apparent); Rushville Nat.l Bank v. State Life Ins. Co., 1
N.E.2d 445, 449 (Ind. 1936) (It is inconsistent with these basic principles to permit one who has
designed a plan calculated to deceive and defraud, and who is discovered before the fraud is
accomplished, to claim a waiver and estoppel to deny it . . . .). The evidence introduced at trial
showed that, through a series of misrepresentations, Guidant intentionally concealed from J&J
that it was furnishing diligence to Abbott and, when confronted by J&J attempted to justify its
conduct by concocting a series of arguments that had nothing to do with the contrived basis on
- 112 KL3 3002155.1
which the information had actually been provided to Abbott. Thus Guidants own conduct
makes it ineligible for any sort of equitable relief.
6.
229.
Damages
In its Prayer for Relief, J&J requests damages in an amount of not less
than $5.5 billion, representing the difference between the $63.08 per share price contracted for in
the Merger Agreement (or $21.5 billion) and the $80 per share price that BSC paid to acquire
Guidant (or $27 billion), plus pre-judgment interest. (Doc. No. 1). At trial, however, J&J made
clear that it is seeking to recover the difference between the $63.08 contract price and J&Js
planned bid of $75 per share, or $4.315 billion. Guidant contends that (i) J&Js damages are
properly measured as the loss actually suffered by J&J and not by reference to Guidants fair
market value, (ii) J&J failed to prove damages with the requisite certainty, (iii) J&J failed to
mitigate its damages, and (iv) the $705 million termination fee must be set off against any
damages award. The Court will address each of these arguments in turn, as well as J&Js request
for prejudgment interest.
a.
230.
Measure of Damages
It is well established in Indiana law that damages are awarded to
compensate an injured party fairly and adequately for her loss, and the proper measure of
damages must be flexible enough to fit the circumstances. Bolin v. Wingert, 764 N.E.2d 201,
207 (Ind. 2002). The typical recovery for breach of contract is a partys expectation interest
(i.e., the benefit of the bargain). Shepard, 463 F.3d at 748 (citing Fowler v. Campbell, 612
N.E.2d 596, 603 (Ind. Ct. App. 1993)); Hi-Tec Props., LLC v. Murphy, 14 N.E.3d 767, 776 (Ind.
Ct. App. 2014) (same). A partys expectation interest is his interest in having the benefit of
his bargain by being put in as good a position as he would have been in had the contract been
performed. Restatement 2d Contracts 344. A damage award must be referenced to some
- 113 KL3 3002155.1
fairly defined standard, such as cost of repair, market value, established experience, rental value,
loss of use, loss of profits or direct inference from known circumstances. Id.; Shepard, 463
F.3d at 745. Where the amount of damages may be estimated in a variety of ways, the law
adopts that mode of estimating the damages which is most definite and certain. Connersville
Wagon Co. v. McFarlan Carriage Co., 76 N.E. 294, 298 (Ind. 1905); 9 Ind. Law Encyc.
Damages 58 (same).
231.
The difference between the price at which J&J contracted to buy Guidant
and Guidants fair market value at the time of breach is consistent with a well-recognized
measure of damages for breach of contract. J. Murray, Contracts 237 (2d rev. ed. 1974) (As a
general rule our law has adopted the standard of market value at the time and place of failure to
perform as the basis for measuring the compensation to which the injured promisee is entitled.).
Numerous Indiana cases illustrate the application of this principle. See, e.g., Coffin v. State, 43
N.E. 654, 655 (Ind. 1896) (damages for failure to deliver corporate bonds properly measured as
difference between contract price and market value); Roder v. Niles, 111 N.E. 340, 342 (Ind. Ct.
App. 1916) (same re failure to issue corporate stock); Annon II, Inc. v. Rill, 597 N.E.2d 320 (Ind.
Ct. App. 1992) (same re breach of hotel purchase agreement).28
28
See also, Zehner v. Dale, 25 Ind. 433, 433-34 (1865) (same regarding failure to deliver
lumber); Beard v. Sloan, 38 Ind. 128, 129 (1871) (same regarding failure to deliver corn);
Kokomo Steel & Wire Co. v. Republic of France, 268 F. 917, 922 (7th Cir. 1920) (same re failure
to deliver wire); McGehee v. Elliott, 849 N.E.2d 1180, 1190 (Ind. Ct. App. 2006) (same re failure
to convey land); Arlington State Bank v. Colvin, 545 N.E.2d 572 (Ind. Ct. App. 1989) (same);
Showalter, Inc. v. Smith, 629 N.E.2d 272, 275 (Ind. Ct. App. 1994) (same). More generally,
Indiana courts routinely measure damages for breach of contract by reference to an assets fair
market value. See, e.g., Scott-Reitz Ltd. v. Rein Warsaw Assoc., 658 N.E.2d 98, 105 (Ind. Ct.
App. 1995) (damages for breach of lease by anchor tenant measured as difference between
market value of shopping center before and after breach); Egan v. Burkhart, 657 N.E.2d 401, 405
(Ind. Ct. App. 1995) (damages for breach of brokerage agreement measured as difference
between initial and subsequent sales price of property); C.f. G&S Metal Consultants, Inc. v.
Continental Cas. Co., No. 3:09-cv-493 (JD) (PRC), 2013 WL 6047574, at *6 (N.D. Ind. Nov. 15,
2013) (admitting expert testimony of appraisal measure of damages for breach of insurance
contract).
- 114 KL3 3002155.1
232.
In Annon II, plaintiff successfully sued for breach of an agreement to
purchase a hotel and was awarded damages measured as the difference between the contract
price and the fair market value of the hotel at the time of breach. At trial, plaintiff submitted
evidence of the hotels fair market value based on an income capitalization approach of
valuation using projections of the hotels future income. 597 N.E.2d at 327. Defendant
appealed, arguing that because damages are properly measured as the difference between the
contract price and the market value of the hotel at the time of breach, the trial court erred by
allowing plaintiff to submit evidence of the hotels projected lost profits. The Court of Appeals
confirmed that it is the fair market value at the time of the breach that is controlling but found
that the hotels future profits were relevant not as anticipated lost profits as such, but rather as
going to the fair market value of [the hotel] on the date of the breach. Id. at 326-28. In
reaching this conclusion, the Court held that the fair market value of the hotel could be estimated
using any one or more of three well recognized methods of appraisal: (1) the current cost of
reproducing the property less depreciation from all sources, (2) the market data approach, or
value indicated by recent sales of comparable properties in the market, and (3) the income
approach, or the value which the propertys net earning power will support based upon the
capitalization of net income. Id. (citation and quotation omitted).
233.
There are good reasons to use a market measure of damages. When a
defendants conduct results in the loss of an income-producing asset with an ascertainable

market value, the most accurate and immediate measure of damages is the market value of the
asset at the time of breach not the lost profits that the asset could have produced in the future.
Schonfeld v. Hilliard, 218 F.3d 164, 176 (2d Cir. 2000). The market value of an incomeproducing asset is inherently less speculative than lost profits because it is determined at a single
- 115 KL3 3002155.1
point in time. Id. at 177.29 It also provides a more true measure of a plaintiffs loss. An assets
market value reflects, to a large extent, a buyers projections of what income he could derive
from the asset in the future i.e. lost profits but it also factors in discounts for the time value
of money and uncertainty. Safka Holdings LLC v. iPlay, Inc., No. 12 civ. 7301 (RJS), 2013 WL
9636959, at *4 (S.D.N.Y. May 20, 2013) (Sullivan, J.) (quoting Schonfeld, 218 F.3d at 176).
234.
That said, the Court is mindful that a plaintiff is limited to recovering
only the losses actually suffered from a breach. Shepard, 463 F.3d at 745. While as a general
rule, when a defendants breach of contract deprives a plaintiff of an asset, the courts look to
compensate the plaintiff for the market value of the asset in contradistinction to any peculiar
value the object in question may have had to the owner, Schonfeld, 218 F.3d at 178, here, the
Court is persuaded that awarding the full measure of its market damages would put J&J in a
better position than it would have been had Guidant performed the contract. There is no dispute
that J&J did not intend to resell Guidant for its fair market value but instead planned to operate
the company to realize what J&J viewed to be the unique investment value of Guidant to J&J.
Accordingly, the Court will limit the amount of J&Js recovery to that portion of its market
damages equal to the difference between the contracted-for purchase price ($63 per share) and
29
Dobbs Law of Remedies illustrates the usefulness of using a market measure of damages
with the following example:
A racehorse might or might not win any important races in the future; no one knows for
sure. If the defendant breaches a contract to sell the horse, or if someone negligently
injures the horse so that he can no longer race, we might find it quite difficult to estimate
the profits the horse would have earned in an uncertain future racing life. If there really
is a well-developed market for the horse or for horses that are closely similar in breeding
and experience, the horses market price will reflect the judgment of many potential
buyers about his prospects. The market price incorporates the potential buyers discount
for the uncertainties of the future as well their hopes. Using the market price instead of
guessing about profits he might have earned is one very useful way of dealing with the
uncertainty of the future. 3.3(3) 2d. Ed. (1993).
- 116 KL3 3002155.1
the investment value of Guidant to J&J. As noted, that is actually what J&J is seeking in this
case and it has pointed to persuasive authority in which, for similar reasons, less than full market
damages have been awarded in cases involving breach of a merger agreement.
See Mid-
Continent Tele. Corp. v. Home Tele. Co., 319 F. Supp. 1176, 1198-99 (N.D. Miss. 1970) (using
adjusted market measure of damages based on second highest bid for target to account for
excess premium in winning bid attributable to tax considerations unique to winning bidder);
WaveDivision, 2010 WL 3706624 at *19-24 (measuring damages by reference to the investment
value of target company to plaintiff).
b.
235.
Proof of Damages
Under Indiana law, [d]amages for breach of contract may not be awarded
unless there is sufficient evidence to calculate the loss with a reasonable degree of certainty.
Pepsi-Cola Co. v. Steak n Shake, Inc., 981 F. Supp. 1149, 1160 (S.D. Ind. 1997). However,
there is no requirement of any particular degree of mathematical certainty . . . and where there is
any doubt as to the exact proof of damages, such uncertainty must be resolved against the
wrongdoer. Id. (citation and internal quotation marks omitted). Where, as here, damages are
sought for the lost value of an income producing asset, the assets value should be proven with
reasonable certainty. Schonfeld, 218 F.3d at 177; see also, In re Emerald Casino, Inc., No. 11
cv 4714, 2014 WL 4954453, at *139 (N.D. Ill. Sept. 30, 2014) (history of offers and bids for
asset establish a reasonable basis for the computation of damages).
236.
As discussed, the Indiana Supreme Court has indicated that evidence of an
assets fair market value is sufficiently reliable to support damage awards. Fair market value is
the price at which [an asset] would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both parties having reasonable
knowledge of relevant facts. United States v. Cartwright, 411 U.S. 546, 551 (1973); State v.
- 117 KL3 3002155.1
Bishop, 800 N.E.2d 918 (Ind. 2003) (same). A recent sales price for an asset, negotiated by the
parties at arms length, is the best evidence of the assets market value. Schonfeld, 218 F.3d at
178-79 (citing Suitum v. Tahoe Regional Planning Agency, 520 U.S. 725, 741-42 (1997); Accord
Annon II, 597 N.E.2d at 326-27 (determining the value of an income producing asset based on
recent sales is a well-recognized method of appraisal).
237.
Guidants fair market value at the time of breach is evident from its sales
price: $80 per share. BSC and Guidant were not under any compulsion to buy or sell and both
had reasonable knowledge of relevant facts at the time of the deal.
(Tr. 1495:15-1496:2
(Cornell)). Two investment banking firms, Merrill and Bear Stearns, issued opinions that this
price was fair to BSC. (Hartman Ex. 1/ML; Bicknese Ex. 1/BS; Tr. 447:6-447:11 (Bicknese);
Tr. 583:4-584:18 (Hartman)). Accordingly, Guidants sales price is the best evidence of
Guidants fair market value as of January 25, 2006, when Guidant accepted BSCs $80 per share
offer.30
30
Under Indiana law, because Guidants entire course of conduct combined to produce an
injury the termination of the Merger Agreement on January 25 Guidants breach was
continuing through that date. C&E Corp. v. Rambo Indus., Inc., 717 N.E.2d 642, 644 (Ind. Ct.
App. 1999). This is consistent with the ordinary rule that when a party seeks damages for loss of
an income producing asset, the value of the lost asset is determined as of the time the property is
lost, which is usually also the time of the breach. Spectrum Scis. & Software, Inc. v. United
States, 98 Fed. Cl. 8, 15 (2011) (citation omitted); Schonfeld, 218 F.3d at 178 (same). Moreover,
even if breach is measured as of the time Guidant provided diligence to Abbott (December 22 to
30), the lapse of time between those dates and Guidants acceptance of BSCs $80 per share
offer (January 25) is short enough to give rise to a rebuttable presumption that Guidants fair
market value was equivalent on both dates. See, e.g., In re September 11th Litig., 590 F. Supp.
2d 535, 547 (S.D.N.Y. 2008) (lapse in time between date plaintiff acquired leases to World
Trade Center properties, July 16, 2001, and time of measuring damages, September 11, 2001,
was sufficiently short for a rebuttable presumption that the market value of the leases was the
same on both dates). The fact that BSC had not yet made its $80 per share bid at the time
diligence was provided to Abbott is of no moment because in an auction proceeding the highest
bid for an asset represents its fair market value. In re Residential Capital, LLC, 501 B.R. 549,
603 (Bankr. S.D.N.Y. 2013); In re Trans World Airlines, Inc., No. 01-00056 (PJW), 2001 WL
1820326, at *4 (Bankr. D. Del. Apr. 2, 2001) (same, as a matter of auction industry practice).
- 118 KL3 3002155.1
238.
Nonetheless, Guidant argues (i) that J&J failed to prove that it actually
suffered any loss because in hindsight Guidant was worth less than $63 per share, and (ii) that
even without consulting ex-post evidence J&J failed to prove the investment value of Guidant to
J&J with the requisite certainty. The Court addresses both arguments in turn.
(i)
239.
Hindsight
Guidant contends that J&J did not suffer any actual harm as a result of its
breach because, in hindsight, Guidant was worth less than $63 per share. To support this claim,
Cornell testified that Guidants CRM product revenues comprised approximately 72% of
Guidants total value and that when the actual growth rate of the worldwide CRM market
between 2007 and 2014, 0.7%, is inputted into the discounted cash flow (DCF) model that J&J
used to value Guidant, 13%, the net present value to J&J of a transaction at $63 per share is
approximately negative $11.3 billion. (Cornell Aff. 51-53 (DX 164)). Based on this analysis,
Cornell opined that J&J dodged a bullet and is better off having not purchased Guidant. (Tr.
1509:10-1509:16 (Cornell)).
240.
Ex-post evidence of this kind is generally not considered when using a
market approach for valuing a lost asset unless such evidence relates to events anticipatable at
the time of breach. Spectrum Scis. & Software, Inc., 98 Fed. Cl. at 20-21 & n.15 (collecting
cases; post-breach decision regarding timing of orders under supply contract virtually
irrelevant to proper determination of damages); see also Dobbs on Remedies 3.8(2) (One
effect of a market damages measurement . . . is to ignore later events, whether they are favorable
to the plaintiff or unfavorable.). As Cornell acknowledged, when performing an appraisal of an
income producing asset it is generally not appropriate to peek at the actual performance of the
asset subsequent to the date of appraisal. (Tr. 1465:24-1466:10, 1482:3-1482:16 (Cornell)).
- 119 KL3 3002155.1
241.
There is no dispute that the global CRM market grew at a slower rate than
J&J had projected. But Guidant does not claim that J&J or BSC knew or should have known
that the CRM market would grow at the slower-than-projected rate that it did, a phenomena that
Cornell attributed to the great recession. (Tr. 1530:22-1531:5, 1526:25-1527:3 (Cornell)). To
the contrary, Cornell acknowledged that J&Js projections were not markedly different from
what others knowledgeable in the market were projecting and were comparable to the historic
growth rate of the CRM market and that he was not opining that they were unreasonable. (Tr.
1477:25-1480:3 (Cornell)). BSCs investment banks used similar projections, which they too
acknowledged were reasonable. (Tr. 441:9-442:16, 471:17-472:5 (Bicknese); Tr. 586:5-586:10
(Hartman)).
242.
Nonetheless, Guidant contends that the Court must consider its post-
breach evidence to determine whether J&J suffered any actual injury. As support it cites Sinclair
Ref. Co. v. Jenkins Petroleum Process Co., 289 U.S. 689 (1933); Fishman v. Estate of Wirtz, 807
F.2d 520 (7th Cir. 1986); Country Contractors, Inc. v. A Westside Storage of Indianapolis, Inc.,
4 N.E.3d 677 (Ind. Ct. App. 2014); Connersville Wagon Co., 76 N.E. 294. These cases are not
convincing.
243.
Sinclair Ref. Co. is not at all helpful to Guidant. It addresses situations
where a plaintiffs recovery cannot be measured by the current prices of a market because
there are no contemporaneous sales to express the market value of the asset and where the
only evidence available [as to the assets value] may be that supplied by testimony of experts as
to the state of the art, the character of the improvements and the probable increase of efficiency
or saving of expense. 289 U.S. at 697-98. In such situations, Sinclair approves resort to the
proverbial book of wisdom i.e., consulting ex-post evidence to correct the uncertain
- 120 KL3 3002155.1
prophecy of such experts. This is not a case, like that contemplated by Sinclair, where a market
test is found lacking because it is premised on an imaginary bid by an imaginary buyer
where the subject of the bargain is an undeveloped asset about which information might be
scanty or imperfect. Id. at 699. BSC was a real buyer, and made a real bid that resulted in a
real sale of a mature company, based on extensive due diligence.
244.
Fishman is no more helpful to Guidant. In that case, which involved
antitrust claims brought under the Sherman Act, the court rejected use of a market measure of
damages the difference between a contracted-for purchase price and the fair market value of
the Chicago Bulls basketball team because the winning bidders control over Chicago Stadium,
where the Bulls played, effectively gave it the power to exclude other bidders. Accordingly, the
purchase price did not necessarily represent the price which the Bulls could have commanded
under the conditions of an unfettered market. 807 F. 2d at 533 & n.28.
245.
Connersville Wagon is at odds with Guidants position. It endorses use of
a market measure of damages as more definite and certain than attempting to estimate lost
profits. 76 N.E. at 298-99. That it suggests that lost profits are more likely recoverable when an
efflux of time make[s] that capable of ascertainment which was wholly conjectural before does
not diminish the virtue of greater certitude that the court ascribes to a market measure of
damages, nor does it impugn the validity of that measure where the subject of the contract (here,
Guidant) may have changed in value sometime after the breach.
246.
Finally, Country Contractors adds nothing to Guidants argument. At
most it stands for the proposition that a court may consult ex-post evidence to evaluate the
reliability of projections offered to establish a plaintiffs lost profits. There is no claim here, and
- 121 KL3 3002155.1
certainly no evidence, that the projections used by J&J were not reliable when made.31
Moreover, J&J is not seeking to recover lost profits, nor is it using a capitalization of income
method of valuing Guidants fair market value, as plaintiff did in Annon II.
(ii)
247.
Certainty of Damages
Guidant contends that even without the benefit of ex-post evidence, J&Js
investment value is too uncertain to prove damages. At trial, Cornell made two broad points in
this regard. First, he opined that it is not possible to determine with reasonable certainty what
Guidants investment value was to J&J at the time of any alleged breach because J&Js valuation
changed significantly over time. Second, he opined that J&Js valuations were speculative
because they were highly sensitive to changes in the assumptions inputted into J&Js DCF
model.
248.
With respect to the first point, Cornell observed that J&Js DCF-based
valuation of Guidant was approximately (i) $27.6 billion as of December 15, 2004, the date of
the original merger agreement, (ii) $24.1 billion on November 13, 2005, the day before the date
of the revised merger agreement, (iii) $22.8 billion (exclusive of defensive value) on January 10,
2006, and (iv) and $22.9 billion (exclusive of defensive value) on January 18, 2006. Based on
that information Cornell concluded that J&Js valuation of Guidant (exclusive of defensive
value) decreased by approximately 17%, or $4.7 billion, between December 15, 2004 and
January 18, 2006. (Cornell Aff. 41-43 (DX 164)). But Cornell exaggerated the degree to
which J&Js valuation changed over time by including a 2004 valuation that had no bearing on
31
Guidant also points to goodwill charges it took and fines it paid years after the acquisition
relating to the problems with its defibrilators that had surfaced in 2005. (See 12, supra). But
as both of Guidants investment bankers testified, the potential fallout from those issues was
taken into account when they rendered their fairness opinions. (Tr. 474:4-475:18 (Bicknese); Tr.
586:11-587:17 (Hartman)).
- 122 KL3 3002155.1
Guidants value at the time of breach and by subtracting from J&Js January 2006 valuations the
defensive value to J&J of preventing Guidant from being acquired by BSC. When this defensive
value is properly included in J&Js valuations, the change in J&Js DCF valuations between
November 2005 and January 2006 is minimal: $24.1 billion, as of November 13, 2005; $23.8
billion, as of January 13, 2006; and $23.9 billion as of January 18, 2006. (Jarrell Aff. 9 & n.2
(PX 19)).
249.
With respect to Cornells second point, he testified that J&Js DCF model
was sensitive to a number of inputs, including (i) the assumed perpetuity growth rate for
operating income and cash flows that were projected after the tenth year, (ii) the discount rate
selected, and (iii) Guidants projected future sales over ten years. Specifically, Cornell found
that a 50 basis point (0.5%) change in the assumed perpetuity growth rate resulted in a change
between $3.31 and $5.70 per share at the 9.5% discount rate that J&J used in its valuations. He
also found that Guidants value per share varied between $5.34 and $9.42 per 50-basis-point
change in the discount rate between 8.5% and 10.5%, assuming 4% perpetuity growth rate.
Finally, he found that the net present value of J&Js planned acquisition of Guidant at the $63
per share contract price would decline by $1.3 billion for each percentage point reduction in the
assumed growth rate of the CRM market. (Cornell Aff. 44-53 (DX 164)).
250.
Cornells critiques of J&Js DCF model are neither relevant nor well-
taken. Cornell acknowledged that DCF analysis is the preeminent framework used for valuing
businesses and that if the inputs to the model are reasonable the output is deemed to be among
the most credible ways of valuing an asset. (Tr. 1473:13-1473:24 (Cornell)). BSCs financial
advisors, Merrill and Bear Stearns, used a DCF analysis to perform their valuation of Guidant.
(Tr. 482:21-484:17 (Bicknese); Kury Ex. 48; Hartman Ex. 1). Cornell did not opine that J&Js
- 123 KL3 3002155.1
model was any more sensitive than models used by other major New York Stock Exchange
companies and he expected that it was similarly sensitive to the models used by BSC, Guidant
and their respective financial advisors.
(Tr. 1475:7-1476:3, 1476:14-1477:13 (Cornell)).
Moreover, as Cornell acknowledged, there are methods for accounting for such uncertainties,
including the selection of an appropriate discount rate and probabilistic analysis, which J&J used
in performing its analyses. (Tr. 365:20-366:1 (Jarrell); 1482:17-1482:19 (Cornell)).
251.
The Goldman analyses to which Cornell points as evidence of the
sensitivity of J&Js valuations are not in any way indicative of the certainty of J&Js valuations.
As Cornell acknowledged, Goldman nowhere says that the numbers in these analyses represent
what Goldman believed to be a range of reasonable valuations of Guidant. (Tr. 1483:17-1487:14
(Cornell)). Cornell did not know whether the analyses reflected a judgment by Goldman that
Guidants value was uncertain or whether they were instead simply intended to show J&J a
broad range of outcomes depending on what inputs J&J wanted to use. (Tr. 1488:7-1488:18
(Cornell)).32 Moreover, Cornell acknowledged that Goldmans analyses were performed for the
purposes of rendering a fairness opinion and that he did not know whether J&J relied on them for
purposes of performing its own DCF valuation of Guidant. (Tr. 1491:8-1491:13 (Cornell)). In
sum, as Cornell conceded, his opinion that it is uncertain whether J&J incurred any damages
amounts to nothing more than an observation that if certain outcomes within the sensitivity range
presented by Goldman occurred, the value of Guidant would be less than J&Js $63 per share
offer. (Tr. 1491:14-1493:15 (Cornell)).
32
That Goldmans sensitivity analysis was not intended to reflect a range of reasonable
valuations of Guidant is evident from the fact that when Goldman was advising J&J that its
break-even price for Guidant was $76 per share, and that it could not provide a fairness opinion
to J&J for an offer above $75 or $76 per share Goldmans contemporaneous sensitivity analysis
included a valuation as high as $107 per share. (Tr. 1489:1-1491:20 (Cornell)).
- 124 KL3 3002155.1
252.
In any event, even if the Court credited Cornells critiques of J&Js DCF
valuations, Cornell admitted on cross-examination that J&Js commitment to pay $71 per share
to purchase Guidant is proof positive that J&J placed a value on Guidant of at least that
amount when it made that bid and the fact that J&Js DCF valuation changed over time and was
sensitive to changes in the inputs to its DCF model does not alter that fact. (Tr. 1453:11-1454:23
(Cornell)). Cornell admitted that the same is true of J&Js planned bid of $75 per share,
assuming the evidence shows that J&J was prepared to make a bid in that amount. (Tr. 1454:61454:19 (Cornell)). The record evidence in fact shows that J&J was prepared to make such a
bid. Weldon testified that J&J was prepared to bid up $75 per share. (Weldon Aff. 7 (PX 21)).
That testimony is corroborated by Goldmans Hitchner, who testified that Weldon discussed
making a $75 per share bid with Guidant Chairman Cornelius and that Hitchner himself also
spoke to JPMorgan banker Robert Huffines about J&J making a $75 per share bid, knowing that
he had [$]75 in [his] pocket. (Hitchner Dep. 153:7-154:4; Korbich Ex. 28). Guidant has
presented nothing to contradict this evidence.
253.
In sum, the Court finds that J&Js recovery is entitled to recover the
difference between the contracted-for price of $63.08 per share and Guidants investment value
to J&J, as evident from its planned bid of $75 per share, or $4.315 billion, subject to set-off as
described below.
c.
254.
Mitigation
Guidant argues that J&J failed to mitigate its damages by appropriately
and promptly notifying Guidant of its intent to treat the provision of confidential business
information to Abbott as a material breach of the Merger Agreement, or seeking to prevent the
closing of the transaction between Guidant and BSC. Specifically, Guidant points to the fact that
under the Merger Agreement J&J had the right to seek specific performance if it thought that a
- 125 KL3 3002155.1
breach was about to occur. (Kury Ex. 9, 8.10, at SA 00026247-48; Tr. 162:9-162:11 (Deyo)).
Guidant also points to the fact that J&J considered, but elected not to seek injunctive relief after
learning that Guidant had furnished information to Abbott. (Tr. 329:3-329:9 (Townsend)).
255.
The duty to mitigate damages is a common law duty independent of the
contract terms that requires a non-breaching party to make a reasonable effort to act in such a
manner as to decrease the damages caused by the breach. Fischer v. Heymann, 12 N.E.3d 867,
871 (Ind. 2014) (citation and internal quotation marks omitted). The burden of proving that the
non-breaching party has failed to use reasonable diligence to mitigate damages lies with the party
in breach. Id. at 871 (citation and internal quotation marks omitted).
256.
As to Guidants first point, the evidence shows that J&J communicated to
Guidant that it believed that Guidant had breached the Merger Agreement on three separate
occasions: 1) on January 9, when Deyo and Hilton called Kury seeking an explanation of the
basis on which Guidant provided Abbott with diligence, 2) on January 23, when Deyo wrote to
Kury asking for an explanation, and 3) on January 24, when Deyo wrote to Kury a second time
questioning the justifications that Kury gave in his e-mail of January 23. Kury admits that he
understood that J&J was alleging that Guidant breached the Merger Agreement before Guidant
decided to terminate it. This is enough to put Guidant on notice of J&Js concern.
257.
As to Guidants second point, J&J had no duty to seek an injunction to
prevent the merger of BSC and Guidant. Westman Commn Co. v. Hobart Corp., 541 F. Supp.
307, 315 (D. Colo. 1982) (a defendant can not claim immunity from damages caused by its
illegal actions because a plaintiff could have stopped them by filing for an injunction); Wilson v.
Kreusch, 675 N.E.2d 571, 574 (Ohio Ct. App. 1996) (The [mitigation] doctrine does not require
a party to undertake extraordinary expense, such as would be involved in seeking injunctive
- 126 KL3 3002155.1
relief.). Nor did it require J&J, which had virtually no knowledge of the circumstances under
which Guidant provided diligence to Abbott, to abandon its efforts to consummate its deal with
Guidant and instead resort to the uncertainties of litigation.
d.
258.
Set Off
Guidant contends that it is entitled to a set off against any damages award
in the amount of the $705 million termination fee that it paid J&J when it terminated the Merger
Agreement. If damages are calculated as the difference between the contract price and the fair
market value of Guidant, the full amount of the fee must be subtracted from J&Js damages;
otherwise J&J would be put in a better position than it would have been had Guidant performed
under the contract. But if damages are calculated as the difference between the contract price
and the investment value of Guidant to J&J, only $80 million must be subtracted from J&Js
damages. Because J&Js contemporaneous net present value calculations already subtracted the
$625 million fee originally provided for in the Merger Agreement in calculating the value of the
transaction to it during the bidding process (Korbich Ex. 28, at GG-JJ_018855) only the
difference between that amount and the amount of the fee actually received by J&J, $80 million
(i.e., $705 million minus $625 million) must be deducted from J&Js damages.
259.
Accordingly, J&Js damages, net of the termination fee, are $4.235 billion,
calculated as the difference between the contract price and the investment value of Guidant, as
evident from J&Js planned bid of $75 per share (i.e., $4.315 billion minus $80 million).33
e.
260.
Prejudgment Interest
J&J seeks prejudgment interest at the rate of 8% pursuant to Indiana Code
24-4.6-1-102, 103. See BKCAP, LLC v. Captec Franchise Trust 2000-1, No. 07-cv-637, 2011
33
The corresponding numbers if the $71 actual bid is used are $2.883 billion minus $80
million, or $2.803 billion.
- 127 KL3 3002155.1
WL 4916573, at *2 (N.D. Ind. Oct. 14, 2011) (under Indiana law, prejudgment interest is
awarded at an eight-percent rate where the damages are readily ascertainable as of a particular
time.) (citing Ind. Code 24-4.6-1-102,103).
261.
In a diversity case, state law governs the award of prejudgment interest.
Granite Ridge Energy, LLC v. Allianz Global Risk US Ins. Co., 979 F. Supp. 2d 385, 391
(S.D.N.Y. 2013) (quoting Schipani v. McLeod, 541 F.3d 158, 164 (2d Cir. 2008)).
To
determine which states law applies, a federal court sitting in diversity must apply the conflictof-laws rules of the state in which the federal court sits. Id. (quoting Cantor Fitzgerald Inc. v.
Lutnick, 313 F.3d 704, 710 (2d Cir. 2002)). In a breach of contract case, where the parties have
validly chosen a states law to govern the interpretation of their contract, that same law will
determine the award of prejudgment interest.
Id. at 392; see also Arbitration Between
Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc., 420 F. Supp. 2d 223, 226-27
(S.D.N.Y. 2005) (prejudgment interest on breach of contract claim governed by Pennsylvania
law where contract was governed by Pennsylvania law).
262.
Under Indiana law, prejudgment interest is proper when damages are
ascertainable in accordance with fixed rules of evidence and accepted standards of valuation at
the time damages accrue. Frey v. Workhorse Custom Chassis, LLC, No. 03-cv-1896-DFHVSS, 2007 WL 647495, at *5-6 (S.D. Ind. Jan. 24, 2007) (we interpret Indianas standard to
mean only that damages must be ascertainable as of a particular time (not actually ascertained
prior to trial) according to known standards of value (not liquidated amounts). (quoting
Simmons, Inc. v. Pinkertons Inc., 762 F.2d 591 (7th Cir. 1985)). [I]n such an instance, [a
prejudgment interest award] is required and not a matter of discretion.
Caudill Seed &
Warehouse Co., v. Rose Seeding & Sodding, Inc., 764 F. Supp. 2d 1022, 1033 (S.D. Ind. 2010).
- 128 KL3 3002155.1
In a breach of contract case, prejudgment interest accrues from the date of breach. Bernel v.
Bernel, 930 N.E.2d 673, 684 (Ind. Ct. App. 2010).
263.
Here, J&Js damages are readily ascertainable using standard valuation
methodologies. For purposes of calculating the amount of prejudgment interest that has accrued,
the Court will assume that Guidants breach occurred on January 25, 2006, the date Guidant
terminated the Merger Agreement.
Applying an 8% interest rate to the amount of J&Js
expectation damages, $4.315 billion, yields total accrued prejudgment interest as of January 16,
2015 of $3,042,424,000.34
34
Subsequent to that date, interest accrues at the rate of $928,219.18 per day. The
corresponding figure based on a damages award of $2.803 billion is $614,356.16 per day.
- 129 KL3 3002155.1
CONCLUSION
264.
For these reasons stated above, the Court finds that Guidant willfully and
materially breached the Merger Agreement and awards J&J damages in the amount of $__
billion.
Dated: New York, New York
January 16, 2015
Kramer Levin Naftalis & Frankel LLP
By: //s// Harold P. Weinberger_____________
Harold P. Weinberger (HW-3240)
John P. Coffey (JC-3832)
Joel M. Taylor (JT-6917)
Jennifer Diana (JD-8531)
Michelle Ben-David
1177 Avenue of the Americas
New York, New York 10036
(212) 715-9100
Attorneys for Plaintiffs
- 130 KL3 3002155.1

JNJ V BSX Johnsons Findings of Fact and Proposed Conclusions of Law

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Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 1 of 141

UNITED STATES DISTRICT COURT

Civil Action No. 06-7685 (RJS)

JOHNSON & JOHNSONS

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 2 of 141

Breach of Contract .................................................................................................38

Section 4.02(a) ...............................................................................39

Furnishing Diligence to Abbott .........................................41

BSC-GDT Confidentiality Agreement ..............................56

Furnishing Diligence to the FTC .......................................58

Section 4.02(b) ...............................................................................58

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 3 of 141

Section 4.02(c) ...............................................................................59

Absence of Evidence Corroborating Innocent Intent.....................62

Pattern of Misconduct ....................................................................71

BSC-GDT Confidentiality Agreement ..............................71

The Co-Promotion Agreement ...........................................78

Regulatory Strategy ...........................................................80

Concealment of Misconduct ..........................................................80

Lack of Candor ..............................................................................82

No Offer Without a Breach ............................................................94

Shareholder Approval ....................................................................96

Empirical Research ............................................................99

Trading Prices ..................................................................100

Analyst Reports ................................................................104

J&Js Expectations ...........................................................105

Proof of Damages ........................................................................117

Certainty of Damages ......................................................122

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 4 of 141

Set Off ..........................................................................................127

Prejudgment Interest ....................................................................127

- iii KL3 3002155.1

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 5 of 141

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 6 of 141

City of New Albany v. Cotner,

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 7 of 141

Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp.,

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 8 of 141

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 9 of 141

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 10 of 141

United States v. Bilzerian,

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 11 of 141

Wright-Moore Corp. v. Ricoh Corp.,

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 12 of 141

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 13 of 141

In an Opinion and Order issued on August 29, 2007, Judge Gerard E.

On October 1, 2009, following Judge Lynchs elevation to the Second

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 14 of 141

This case proceeded to trial on November 20-25 and December 15-19,

In addition to reviewing the excerpts of deposition transcripts identified by the parties,

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 15 of 141

J&J is a multi-national manufacturer and distributor of health care,

Guidant was an Indiana corporation that designed, developed, and

In August 2004, in connection with their discussion of a potential merger,

J&J and Guidant executed a confidentiality agreement (the J&J-GDT Confidentiality

On April 27, 2005, as required by the initial merger agreement, Guidants

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 16 of 141

Beginning in mid-2005, Guidant made a series of announcements

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 17 of 141

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 18 of 141

denominated as a No Solicitation provision, it actually prohibited Guidant not just from

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 19 of 141

This provision contained an exception that permitted Guidant to furnish