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Hijazi Medical Supplies v. AGA Medical Corp.: US District Court : CONTRACT | FOREIGN CORRUPT PRACTICES ACT - when distributors talk; evidence of conspiracy; parol evidence; account stated

Civil No. 07-3419(DSD/JJG)
Hijazi Medical Supplies, a
foreign corporation, and
Riyad M. Hijazi, an individual,
AGA Medical Corporation, a
Minnesota corporation, and
Amplatzer Medical Sales
Corporation, a Minnesota
Ziyad Hijazi,
Ronald K. Gardner, Jr., Esq., Patrick R. Burns, Esq. and
Dady & Garner, 80 South Eighth Street, Suite 5100,
Minneapolis, MN 55402 and Melanie P. Persellin, Esq. and
Jensen, Anderson, Sondrall, P.A., 8525 Edinbrook
Crossing, Suite 201, Brooklyn Park, MN 55443, counsel for
Thomas S. Fraser, Esq. and James R. Mayer, Esq. and
Fredrikson & Byron, 200 South Sixth Street, Suite 4000,
Minneapolis, MN 55402, counsel for defendants.
Eric P. Sparks, Esq., Paul W. Carroll, Esq. and Gould &
Ratner, 222 North LaSalle Street, Suite 800, Chicago IL
60601, counsel for counter-defendant.
This matter is before the court on plaintiffs and defendants
separate motions for partial summary judgment. After a review of
the file, record and proceedings herein, and for the following
1 Defendant Amplatzer Medical Sales Corporation is a wholly
owned subsidiary of AGA. The court refers only to AGA.
reasons, the court denies plaintiffs motion and grants in part
defendants motion.
This federal diversity action arises out of defendant AGA
Medical Corporations (AGA) April 13, 2007, termination of
plaintiff Hijazi Medical Supplies (HMS) as a distributor of AGA
products. AGA is a Minnesota corporation that develops and
manufactures medical devices for cardiovascular applications.1 HMS
is a Jordanian business that distributes medical devices.
Plaintiff Riyad M. Hijazi (Riyad) is HMSs president and a
resident of Amman, Jordan. Counter-defendant Ziyad Hijazi
(Ziyad) is Riyads brother, a cardiologist and a former AGA
consultant who resides in Illinois. While HMS was a distributor
for AGA, Ziyad and Riyad frequently communicated about HMS and
Ziyad often acted as a conduit between the two companies to ensure
proper communication of HMSs orders to AGA. (Riyad Dep. at 73,
77; Ziyad Dep. at 16-17, 47.)
In 1996, AGAs then president and Chief Executive Officer,
Frank Gougeon (Gougeon), informally appointed Riyad as AGAs
representative in the Middle East. (Riyad Aff. 3.) On October
20, 2004, HMS and AGA entered a written Distributor Agreement
2 The Letter became effective when Riyad signed it on December
11, 2005.
3 Paragraph I(1) of the general conditions provides that:
Failure by either party to comply with any of its
obligations hereunder shall entitle the other party to
give to the party in default notice requiring it to make
good such default. If such default is not made good
within thirty (30) days after such notice, the notifying
party shall be entitled (without prejudice to any of its
other rights conferred on it by this Agreement or by law)
to terminate this Agreement by giving notice to take
effect immediately.
(Gardner Aff. Ex. 3.)
(Agreement) appointing HMS as the exclusive distributor of
certain AGA products for five years in Jordan, Bahrain, Iran,
Iraq, Lebanon, Oman, Qatar, U.A.E., Egypt, Alyemen, Syria, Libya,
Palestine, and Sudan. (Gardner Aff. Ex. 2.) A November 23, 2005,
Letter of Authorization (Letter) further authorized HMS to
handle marketing, distribution, and post market service of certain
AGA products in the countries listed in the Agreement plus Algeria
and Morocco for three years.2 (Id. Ex. 4.)
The Agreement, which was signed by Riyad and AGAs director of
international sales and marketing, Mark Cibuzar (Cibuzar),
incorporated certain general conditions that permitted termination
for cause upon thirty days notice and an opportunity to cure.3
(Id. Ex. 3.) These conditions also permitted AGA to immediately
terminate the distributorship if HMS breached paragraph four of the
Agreement, wherein HMS specifically acknowledge[d] that it [was]
4 Biao is Larrys brother. Riyad claims that he did not know
of the relationship between Biao and Larry until after AGA
terminated HMS. (Riyad Dep. at 115.)
5 Following a voluntary disclosure by AGA, the United States
Department of Justice (DOJ) investigated the alleged FCPA
violations. The investigation resulted in a settlement between AGA
and the DOJ. (Burns Aff. Ex. F at 5.)
aware of the [FCPA] and its applicability to this Agreement and
specifically agree[d] to comply with all provisions and
prohibitions contained therein in the conduct of all activities
under this Agreement. (Id. Ex. 2, 3.)
In June 2005, AGA suspended shipments to the Peoples Republic
of China (PRC) because of alleged violations of the Foreign
Corrupt Practices Act (FCPA) by its distributor Larry Meng
(Larry) of Beijing Since Medical Scientific, Ltd. (BSMS). On
August 12, 2005, Larry e-mailed Ziyad asking him to have Riyad
order AGA products and ship them to his Hong Kong office. (Mayer
Decl. Ex. I.) Larry listed the contact for his Hong Kong office as
Biao Meng4 (Biao) of Since International Development, Ltd.
(SID). (Id.) Ziyad forwarded the request to Riyad, stating that
we need to help Larry. Please order the items below and ship
[them to the] Hong Kong address immediately. (Id.) In November
2005, Ziyad met Larry in the PRC to discuss BSMSs suspension and
later attempted to mediate a resolution of the situation with AGA.
(Ziyad Dep. at 30-39.) AGA, however, terminated BSMSs
distributorship on April 12, 2006.5 At Riyads behest, Ziyad
6 Riyad later testified that he suspected distributors in the
United Arab Emirates and Iraq. (Riyad Dep. at 174.)
thereafter unsuccessfully attempted to secure the PRC
distributorship for HMS. (Riyad Dep. at 74-75; Ziyad Dep. at 41,
On January 9, 2007, Riyad provided Cibuzar with HMSs 2006
sales report, which did not reveal shipments to Hong Kong. (Mayer
Decl. Ex. C; Riyad Dep. at 54.) In an April 3, 2007, letter,
Gougeon informed Riyad that certain AGA products shipped to HMS in
2005 and 2007 were later found in the inventory of a hospital in
the PRC and that BSMS may have imported and sold those products.
(Mayer Decl. Ex. D.) The letter requested an explanation by April
9, 2007. (Id.) On April 4, 2007, Riyad denied selling AGA
products in the PRC and speculated that the products came from a
company that HMS shipped products to in Iraq. (Id. Ex. E.) That
same day, Ziyad asked Larry to tell AGA that the products found in
the PRC came from Iraq, and in an April 5, 2007, e-mail, Ziyad
informed Riyad that Larry had agreed. (Id. Ex. G, H.) On April 6,
2007, Riyad notified AGAs Chief Operating Officer, John Barr
(Barr), that he had narrowed the origin of the products found in
the PRC to two distributors and requested the products serial
numbers.6 (Gardner Aff. Ex. 6.)
On April 9, 2007, Riyad informed Barr that HMS had distributed
AGA products to SID in Hong Kong and that the products found in the
7 Riyad denies knowing that Hong Kong was part of the PRC at
the time HMS shipped AGA products to SID. (Riyad Dep. at 142.)
PRC likely came from SID.7 (Mayer Decl. Ex. F.) Barr responded on
April 10, 2007, noting that SID is wholly owned by BSMS and ordered
HMS to halt all shipments to Hong Kong. (Gardner Aff. Ex. 8.)
Barr further required Riyad to provide HMSs complete shipping
records to SID by April 13, 2007. (Id.) On April 11, 2007, Riyad
informed Barr that HMS stopped shipping products to SID in February
2007 but that he could not provide complete shipping records for
2005 and 2006. (Id. Ex. 9.) Gougeon sent Riyad a Notice of
Termination (Notice) on April 13, 2007, immediately terminating
the Agreement and Letter. (Id. Ex. 10.) The Notice provided that
HMS breached paragraphs one and four of the Agreement by knowingly
shipping AGA products to Hong Kong for further redistribution
within the PRC on at least sixteen occasions between August 2005
and February 2007 and concealing the shipments from AGA. (Id.)
The Notice further asserted that HMS intentionally misled AGA
representatives investigating HMS conduct and breached [the
Agreement] by failing to provide complete and accurate books and
records of account relating to HMS inventory and sales of AGA
products. (Id.)
At the time of HMSs termination, AGA had shipped 9,025.88
in products to HMS for which HMS had not paid. (Second Mayer Decl.
Ex. A.) AGA invoiced HMS for those shipments and payment was due
between April and June 2007. (Id.)
Plaintiffs brought this action against AGA on July 20, 2007,
alleging breach of contract, tortious interference with existing
contracts, intentional interference with prospective contractual
relations or business advantage and unjust enrichment. AGA
counterclaimed against HMS, Riyad and Ziyad, asserting claims for
breach of contract, account stated, promissory estoppel, unjust
enrichment, conversion and fraud. AGA moved for partial summary
judgment on July 8, 2008, seeking a damages limitation on
plaintiffs breach of contract claim and judgment on AGAs account
stated counterclaim. On August 19, 2008, plaintiffs moved for
partial summary judgment as to AGAs liability on plaintiffs
breach of contract claim.
I. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides
that summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law. See Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). A fact is material only when its
8 To the extent plaintiffs argue that AGA did not have cause
to terminate the distributorship, (see Pl.s Reply Br. [Doc. No.
70] at 14), the court determines an issue of fact remains.
resolution affects the outcome of the case. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if the
evidence is such that it could cause a reasonable jury to return a
verdict for either party. See id. at 252.
On a motion for summary judgment, all evidence and inferences
are to be viewed in a light most favorable to the nonmoving party.
See id. at 255. The nonmoving party, however, may not rest upon
mere denials or allegations in the pleadings but must set forth
specific facts sufficient to raise a genuine issue for trial. See
Celotex, 477 U.S. at 324. Moreover, if a plaintiff cannot support
each essential element of his claim, summary judgment must be
granted because a complete failure of proof regarding an essential
element necessarily renders all other facts immaterial. Id. at
II. Breach of Contract
A. Liability
Plaintiffs argue that AGA breached the Agreement by not
providing notice and an opportunity to cure before terminating the
distributorship.8 AGA contends that it had the right to
immediately terminate the Agreement because plaintiffs conspired
with Larry and BSMS to violate the FCPA.
The FCPA prohibits brib[ing] foreign government officials to
obtain or retain business, or to direct business to another
person. United States v. Kozeny, 493 F. Supp. 2d 693, 703
(S.D.N.Y. 2007) (quotation omitted); see 15 U.S.C. 78dd-1 et
seq.; United States v. King, 351 F.3d 859, 863 (8th Cir. 2003). To
violate the FCPA, an individual must have a bad or wrongful
purpose and an intent to influence a foreign official to misuse his
official position. Kozeny, 493 F. Supp. 2d at 704 (quotation
omitted). A conspiracy is an agreement between at least two people
to violate the law. See United States v. Jenkins, 78 F.3d 1283,
1287 (8th Cir. 1996). The agreement need not be formal. United
States v. Jackson, 345 F.3d 638, 648 (8th Cir. 2003) (citation
omitted). Rather, a tacit understanding is sufficient, and can be
proved by direct or circumstantial evidence. Id. (citation
omitted). Although not sufficient by itself, association or
acquaintance among the [alleged conspirators] supports an inference
of conspiracy." Id. (quoting United States v. Sparks, 949 F.2d
1023, 1027 (8th Cir. 1991)).
Taking all facts and inferences in favor of AGA, the record
suggests that HMS, unbeknownst to AGA, shipped AGA products to SID
between 2005 and 2007. Further, Ziyads knowledge of the FCPA
allegations against BSMS and his frequent communications with Riyad
support an inference that Riyad knew of BSMSs suspension and the
reason for that suspension in 2005. Indeed, Ziyad testified that
9 AGA also argues that Riyad violated paragraph four because
he testified in his deposition that at the time he signed the
Agreement he was unaware of the FCPA. (See Riyad Dep. at 28-29.)
The record, however, establishes that Riyad received FCPA training
in February 2007 and any alleged deficiency in his awareness of the
FCPA was cured before AGA terminated the Agreement. Therefore, the
court determines that this argument does not provide an alternative
basis for AGAs immediate termination of the distributorship.
10 In this section, the court takes all evidence and inferences
in a light most favorable to plaintiffs.
everybody knew about [AGAs] investigation of [BSMS]. The
distributors with AGA they all talk to each other. (Ziyad Dep. at
40-41.) Moreover, the August 12, 2005, e-mail, Ziyads April 4,
2007, communication with Larry and Ziyads April 5, 2007, e-mail to
Riyad, support Riyads knowledge that SID and BSMS were related
entities and that the products HMS shipped to SID would later be
shipped to BSMS. The record further indicates that Riyad concealed
the Hong Kong shipments by submitting a false 2006 sales report,
and when confronted by AGA about the products found in the PRC,
Riyad initially obfuscated the likely origin of those products.
Taken as a whole, these facts support an inference that Riyad
conspired with Larry to violate the FCPA. Therefore, AGA may have
had the right to immediately terminate the Agreement, and summary
judgment as to AGAs liability is not warranted.9
B. Damages Limitation10
The Agreement contemplated a five-year term but permitted
either party to terminate the distributorship without cause upon
ninety days written notice after October 19, 2007. (Gardner Aff.
Ex. 2 3.) Thus, AGA maintains that even if it terminated the
Agreement without cause, plaintiffs may not recover damages beyond
January 18, 2008. Plaintiffs argue that because the without cause
termination provision was not in effect at the time of AGAs
alleged improper termination of the Agreement, AGA cannot rely on
that provision to limit its potential liability.
When a breaching party has the power to terminate a contract
upon notice, the general rule is that the calculation of damages is
limited to the notice period. Childrens Broad. Corp. v. Walt
Disney Co., 245 F.3d 1008, 1019 n.4 (8th Cir. 2001) (citing
Minnesota law). This is so because the measure of damages is
based upon the expectancy value of the contract. In re Petroleum
Carriers Co., 121 F. Supp. 520, 527 (D. Minn. 1954).
In April 2007, AGA did not have the right to terminate the
Agreement without cause upon notice. Nevertheless, such a right
would have vested on October 20, 2007. Therefore, in light of
AGAs April 2007 termination of the distributorship, the expectancy
value of the contract is limited to the ninety day notice period
after AGAs right to terminate without cause would have vested.
Accordingly, under the written Agreement plaintiffs may only
recover damages until January 18, 2008. Plaintiffs maintain,
however, that the parties orally modified the Agreement to prohibit
termination without notice and an opportunity to cure after October
19, 2007.
11 The Agreement provides that it contains the entire
understanding of the parties with respect to the matters herein
contained and voids all prior understandings, if any, between the
parties with respect to the distribution of any Products
manufactured or sold by AGA. (Gardner Aff. Ex. 3 Q.)
12 The Agreement expressly requires modifications to be in
writing. (Gardner Aff. Ex. 3 Q.) Minnesota law, however,
permits oral modifications even if a contract requires written
modifications. See Larson v. Hills Heating & Refrig. of Bemidji,
400 N.W.2d 777, 781 (Minn. Ct. App. 1987).
Where a written agreement is fully integrated,11 the parol
evidence rule prohibits a courts consideration of evidence
concerning discussions prior to or contemporaneous with the
execution of [the agreement] when that evidence contradicts or
varies [its] terms. Michalski v. Bank of Am. Ariz., 66 F.3d 993,
996 (8th Cir. 1995) (quoting Gutierrez v. Red River Distrib., Inc.,
523 N.W.2d 907, 908 (Minn. 1994)). A court may consider evidence
of subsequent oral modifications to a written contract.12 Sokol &
Assocs., Inc. v. Techsonic Indus., Inc., 495 F.3d 605, 610 (8th
Cir. 2007) (citing Larson, 400 N.W.2d at 781). However,
allegations of modifications inconsistent with the written terms
of a contract are subject to rigorous examination. Id. at 610-11
(quoting Bolander v. Bolander, 703 N.W.2d 529, 541-42 (Minn. Ct.
App. 2005)). In other words, such modifications must be shown by
clear and convincing evidence. Bolander, 703 N.W.2d at 542 (citing
Dwyer v. Ill. Oil Co., 252 N.W. 837 (Minn. 1934)).
The only evidence in this case supporting an oral modification
of the Agreement is a declaration submitted by Riyad. In that
declaration, Riyad indicates that throughout his relationship with
AGA, Gougeon and Cibuzar advised him on several occasions that
maintenance of HMSs distributorship was based on performance and
that HMS would be given an opportunity to cure any alleged
deficiencies before termination. Moreover, Riyad notes his
understanding that in exchange for the territorial expansion
contemplated by the Letter, HMS could be terminated only after
notice and an opportunity to cure. The declaration, however,
contains only vague assertions. Riyad does not refer to specific
communications with Gougeon and Cibuzar, nor does he distinguish
between inadmissible pre-Agreement and admissible post-Agreement
statements. Further, the declaration does not indicate that
Cibuzar, Gougeon or any other AGA employee stated that the Letter
modified the termination provisions of the Agreement. Rather, the
declaration provides only that Riyad understood the Letter to have
such an effect. In light of these shortcomings, the court
determines that Riyads declaration would not permit a reasonable
jury to find by clear and convincing evidence that the parties
orally modified the Agreements termination provisions. Cf. Sokol
& Assocs., Inc., 495 F.3d at 610-13 (finding oral statements,
writings and conduct of parties insufficient to raise genuine fact
issue as to modification); Diomed, Inc. v. Vascular Solutions,
Inc., 417 F. Supp. 2d 137, (D. Mass. 2006) (relying on Minnesota
law to find no fact issue as to modification).
13 In this section, the court takes all evidence and inferences
in a light most favorable to plaintiffs.
Finally, plaintiffs argue that further discovery is necessary
to produce evidence of the parties oral modification of the
Agreements termination provisions. Specifically, plaintiffs
request more time to receive AGAs responses to interrogatories,
production of documents and requests for admission, as well as to
depose AGA employees. A court may order a continuance to enable
further discovery. See Fed. R. Civ. P. 56(f). In this case,
however, Riyad would have been a party to any communications
regarding modification of the Agreement and could have provided
facts sufficient to withstand summary judgment. His failure to
provide such facts does not warrant a continuance, and the court
denies plaintiffs request. Accordingly, the court determines that
the Agreement limited damages to those incurred before January 18,
2008, and plaintiffs have not provided sufficient evidence to
support a modification. Therefore, the court grants AGAs motion
for partial summary judgment as to damages.
III. Account Stated13
AGA argues that it is entitled to summary judgment on its
account stated counterclaim. An account stated claim is an
alternative to a breach of contract action by which a party may
establish liability for a debt. See Am. Druggists Ins. v. Thompson
Lumber Co., 349 N.W.2d 569, 573 (Minn. Ct. App. 1984) (citations
omitted). An account stated arises through an acknowledgment or
an acquiescence in the existing condition of liability between the
parties. Bureau of Credit Control, Inc. v. Luzaich, 163 N.W.2d
317, 319 (Minn. 1968) (quotation omitted). If a party acquiesces
to an account rendered and admits the accuracy of the account, the
law implies a promise to pay the amount acknowledged to be owing
and due, without further proof. Id. However, an account stated
is not created when a party acknowledges the correctness of the
account but expressly refuses to pay. 1A C.J.S. Account Stated
19 (2005).
In this case, the parties stipulated without prejudice to any
claims or defenses that AGA sold and shipped products to HMS for
9,025.88, HMS accepted the products, AGA invoiced HMS for the
correct amount and HMS has not paid AGA. (See May 12, 2008, Stip.
[Doc. No. 39].) Although plaintiffs acknowledged the accuracy of
the invoices, the record indicates that they expressly refused
payment and have not acted in a manner that establishes
acquiescence to liability for 9,025.88. (See Riyad Dep. at 91-
92.) Therefore, summary judgment on AGAs account stated claim is
not warranted.
Accordingly, IT IS HEREBY ORDERED that:
1. AGAs motion for partial summary judgment [Doc. No. 46]
is granted in part; and
2. Plaintiffs motion for partial summary judgment [Doc. No.
58] is denied.
Dated: November 10, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court


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