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IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE
May 8, 2007 Session ROSS PRODUCTS DIVISION ABBOTT LABORATORIES v. STATE OF TENNESSEE
Appeal from the Tennessee Claims Commission No. 20050189

No. M2006-01113-COA-R3-CV - Filed December 5, 2007

A manufacturer of infant formula entered into a contract with the State of Tennessee to furnish large quantities of its products to retailers for the federally-funded WIC program. The contract included a cash rebate which the manufacturer agreed to pay the State for each can furnished, to offset the cost of administering the program. After operating under the contract for four years, the manufacturer unilaterally decided to reduce the size of the cans it was providing, and it asked the state to reduce the rebate proportionally. The State refused, citing a provision in the contract that precluded rebate reductions. The manufacturer then filed an administrative claim, asking for a $1.2 million refund of its alleged overpayment of rebates. The Claims Commissioner granted Summary Judgment to the State. We affirm the Commissioner's judgment. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Tennessee Claims Commission Affirmed PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which WILLIAM C. KOCH , JR., P.J., M.S., joined. WILLIAM B. CAIN , J. not participating. Peter H. Curry, Nashville, Tennessee, for the appellant, Ross Products Division Abbott Laboratories. Robert E. Cooper, Jr., Attorney General and Reporter; Janie C. Porter, Senior Counsel, for the appellee, State of Tennessee. OPINION I. BACKGROUND The contract whose interpretation is at the center of this dispute was awarded through a competitive bidding process. On May 6, 1999, the State of Tennessee published a detailed Invitation to Bid (ITB) for a contract to furnish retailers with cans of infant formula that would then be purchased by vouchers issued to individuals enrolled in the Special Supplemental Nutrition Program

for Women, Infants and Children (WIC).1 Retailers participating in the program could then submit these vouchers to the State and be reimbursed for the full retail price of the product. The ITB requested that bidders communicate their "best full truckload national wholesale price" as well as an offer of a rebate for each can purchased through the program. The cash rebate was to be paid to the State on a monthly basis to offset the program's administrative cost. The ITB declared that "an award shall be made to the lowest responsive and responsible bidder based on the lowest net monthly wholesale cost to the state for milk based formula." The parties agree that the "lowest net monthly wholesale cost" was arrived at by considering both the wholesale price and the per can rebate.2 Once a bid was accepted by the State, the original ITB together with the winning bidder's response became the contract between the State and the winning bidder. Ross Products Division of Abbott Laboratories ("Ross" or "the manufacturer") was the low bidder, and was awarded the contract. The contract ran for one year, but was renewable. Ross's performance was apparently satisfactory, at least initially, for the contract was extended annually over the next four years. On June 16, 2003, Ross notified the State that it would be replacing its Similac 14.1 ounce can and its Isomil powder 14 ounce can with infant formula packaged in 12.9 ounce cans,3 starting in October. The manufacturer indicated that "consistency across all items" was the purpose of the move. Ross notified the State that the rebate would need to be reduced to reflect the change and suggested a methodology to compute the reduced rebate during the transition period while the discontinued infant formula cans were being replaced with cans of the smaller size. An exchange of e-mails about Ross's proposal followed, with the company's manager for government operations asking the State for its assent to the proposed transition plan and several State officials responding that they were not certain that any reduction in the rebate was contemplated under the contract. Finally, on December 31, 2003, purchasing administrator Sondra Howe of the
1

"The WIC program is designed to provide supplemental foods (including infant formula) and nutrition education to women, infants and children (up to their fifth birthday) who have income levels so low as to put them at nutritional risk. 42 U.S.C.

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