Author/contributor
Christopher S. Harrison
Partner
Contract due diligence is a critical task that should never be taken lightly. And while ensuring an NDA is properly signed may seem like an administrative task, understanding the rights and authority of the signature holders requires close scrutiny. This is the lesson that Protégé Biomedical learned the hard way in their dealings with Z-Medica, a competitor partially owned by the private equity firm DW Healthcare Partners.[1]
Protégé Biomedical, a company in the blood products space, had matured to a point where they were ready to sell and engaged the financial advisory firm Duff & Phelps. Z-Medica was identified as a potential buyer, and discussions were initiated with the help of Doug Schillinger, a managing director at DW Healthcare Partners and a member of Z-Medica’s board of directors. After negotiations, an NDA was prepared on behalf of Z-Medica by Duff & Phelps and signed by Schillinger.
In the subsequent discussions, Protégé shared confidential information and trade secrets with Z-Medica. Ultimately, Z-Medica decided Protégé’s product did not meet its standards and decided not to proceed with the deal. Several months later, Z-Medica obtained a patent for a blood-clotting product that coincided with Protégé’s FDA approval for their similar product. Z-Medica notified Protégé that their product might infringe on the patent, and Protégé filed a lawsuit alleging that Z-Medica had violated the NDA by using confidential information shared during the discussions.
Z-Medica had one problem with the suit – Doug Schillinger’s signature on the NDA. Schillinger did not identify himself as a Z-Medica board member but as a managing director of DW Partners. To make matters worse, there were blank spaces in the NDA for the recipient and buyer.
Z-Medica argued that it couldn’t have breached the NDA because it wasn’t legally considered a party to it. Although Protégé professed its belief that Schillinger was on behalf of Z-Medica, there was no proof showing that Z-Medica had given Schillinger that authority.
The court agreed with Z-Medica that it was not bound by the NDA, and Protégé lost the lawsuit.
Key takeaways
This cautionary tale highlights some key takeaways for following contract due diligence best practices and ensuring an NDA is properly signed:
- It is essential to scrutinize the authority of signature holders and ensure that everyone involved in negotiations is bound by the NDA. Titles matter and should not be taken lightly.
- Never assume that an individual is signing on behalf of a particular party without proper documentation.
- Avoid leaving blank spaces in the contract.
[1] Protégé Biomedical, LLC v. Z-Medica, LLC, 394 F. Supp. 3d 924 (D. Minn. 2019)
About the author:
Mari Bonthuis, Partner, Head of Litigation
Mari is a litigation partner at Sterlington and leads the firm’s dispute-resolution practice. She is a highly skilled litigator who has tried many cases in federal and state courts as well as before arbitrators. Mari has significant experience with partnership disputes, separation disputes including non-competes, employment agreements, insurance coverage, and securities litigation. Prior to joining the firm, she worked for 10 years in the New York office of Covington & Burling LLP after completing a federal clerkship in the United States District Court for the Eastern District of Pennsylvania. Mari received her J.D. cum laude from New York University School of Law, where she was a Dean’s Scholar, and her B.A. magna cum laude from St. Olaf College.
Sterlington’s Litigation Practice
The Sterlington litigation team has both breadth and depth of experience. The firm regularly represents clients at private equity firms, hedge fund firms, family offices, cryptocurrency companies, and start-ups in both pre-dispute and litigated settings, including arbitrations. Coming from prominent firms such as Covington & Burling, Simpson Thacher & Bartlett, Walkers, and Manatt, Phelps & Philips, the team has the bench strength to tackle litigation of any size and complexity in multiple jurisdictions. We make extensive use of our integrated deal teams and specialists for support on litigation matters, and we welcome alternative fee arrangements where possible.
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Sterlington’s Legal Outsourcing solution provides end-to-end contract management for NDAs, CDAs, MSAs, engagement letters, non-reliance letters, service agreements, vendor agreements, and all other contracts.
