Eastwood v. Molecular Defenses Corp.

• Decision Date: 01 May 2019
• Docket Number: 18cv6652 (JGK)
• Parties: Clinton EASTWOOD et al., Plaintiffs, v. MOLECULAR DEFENSES CORP. et al., Defendants.
• Court: U.S. District Court — Southern District of New York

373 F.Supp.3d 502

Clinton EASTWOOD et al., Plaintiffs,

v.MOLECULAR DEFENSES CORP. et al., Defendants.

18cv6652 (JGK)

United States District Court, S.D. New York.

Signed May 1, 2019

Bryan Jason Vogel, Michael Anthony Kolcun, Jr., Paul V. LiCalsi, Robins Kaplan LLP, New York, NY, for Plaintiffs.

Joshua Alan Mack, Pro Hac Vice, Wilson Sonsini Goodrich & Rosati, P.C., San Diego, CA, Sheryl Shapiro Bassin, Wilson Sonsini Goodrich & Rosati, New York, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

Plaintiffs Clinton Eastwood and Howard Bernstein, as Trustees of the 1988 Clinton Eastwood Trust ("Eastwood Trust"), bring this Complaint against defendants Molecular Defenses Corporation (Nevada) ("MDC Nevada"); Molecular Defenses Corporation (New York) ("MDC New York"); Molecular Defense Holdings, LLC ("MDH"); Molecular Defenses Group Inc.; ThyoGen Group Corporation; and Kevin Davis, the President and Chief Executive Officer of MDC Nevada and ThyoGen Group.

The plaintiffs allege federal patent claims for priority and correction of inventorship, and state law claims for conversion, unjust enrichment, and constructive trust. The defendants move to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and (6). For the reasons explained below, the defendants' motion to dismiss based on Rule 12(b)(1) is granted.

I.

In defending against a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of proving the Court's jurisdiction by a preponderance of the evidence. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). In considering such a motion, the Court generally must accept the material factual allegations in the complaint as true. See J.S. ex rel. N.S. v. Attica Cent. Schs., 386 F.3d 107, 110 (2d Cir. 2004). The Court does not, however, draw all reasonable inferences in the plaintiff's favor. Id.; see also Graubart v. Jazz Images, Inc., No. 02cv4645, 2006 WL 1140724, at *2 (S.D.N.Y. Apr. 27, 2006). Indeed, where jurisdictional facts are disputed, the Court has the power and the obligation to consider matters outside the pleadings, such as affidavits, documents, and testimony, to determine whether jurisdiction exists. See Anglo-Iberia Underwriting Mgmt. Co. v. P.T. Jamsostek, 600 F.3d 171, 175 (2d Cir. 2010) ; APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003) ; Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986). In so doing, the Court is guided by the body of decisional law that has developed under Rule 56 of the Federal Rules of Civil Procedure. Kamen, 791 F.2d at 1011.

When presented with a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, and a motion to dismiss on other grounds, the first issue is whether the Court has the subject matter jurisdiction necessary to consider the merits of the action. See Rhulen Agency, Inc. v. Ala. Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990).

II.

The following facts are accepted for the purposes of the pending motion.

In the mid-1980s plaintiff Clint Eastwood began providing money to support the work of Dr. Harry B. Demopoulos. (Compl. ¶¶ 3, 47.) Dr. Demopoulos was a medical researcher who was exploring glutathione, an antioxidant used to treat diabetes

and other serious diseases. (Id. ¶ 36.) Dr. Demopoulos operated various businesses devoted to the research of glutathione and to the development of glutathione into pharmaceutical commerce. (Id. ) One of those businesses, founded on July 28, 1981, was Antioxidant Pharmaceuticals Corporation ("APC"). (Id. ¶ 46.) APC was formed to research and develop antioxidant Nutrient supplements for the over-the-counter consumer healthcare market. (Id. )

From 1985 to 1996, Eastwood made large monetary loans, both to Dr. Demopoulos and to APC, to support Dr. Demopoulos'scause. In 1985, Eastwood loaned APC $ 300,000. (Id. ¶ 48.) In 1994, Eastwood gave APC $ 43,440. (Id. ¶ 51.)And in1996, Eastwood loaned Dr. Demopoulos $ 150,000. (Id. ¶ 52.) Dr. Demopoulos used the money from Eastwood "in pursuit of glutathione." (Id. ¶ 53.)

Dr. Demopoulos's work proved fruitful, and from 1997 to 2002 Dr. Demopoulos filed applications for six United States patents relating to glutathione (the "U.S. APC Patents"). (Id. ¶ 54.)¹ On December 8, 1999, Dr. Demopoulos executed an assignment to APC of all rights, title, and interest in the U.S. APC Patents, which were still applications at that time. (Id. ¶ 55.) Between December 12, 2000, and May 24, 2005, the U.S. APC Patents issued from the United States Patent and Trademark Office ("USPTO").(Id. ¶ 56.)²

In 1997, Dr. Demopoulos, who had not yet repaid Eastwood for his investments, agreed with Eastwood to convert the debt he owed Eastwood into stock in APC. (Id. ¶¶ 59-60.) On September 24, 1997, APC issued 351,650 company shares to the Eastwood Trust as repayment for the initial $ 300,000 loan Eastwood provided in 1985. (Id. ¶¶ 61-62.)

On December 26, 2001, the New York State Department of State issued a dissolution by proclamation against APC, which rendered the company "inactive." (Id. ¶ 64.) The Eastwood Trust owned over 300,000 shares of APC, but the plaintiffs allege they were unaware that APC was rendered inactive. (Id. ) Despite being defunct, business operations of APC continued. (Id. ¶ 66). Indeed, APC was still filing applications for patents after it was dissolved. (Id. ¶ 67.)

In November 2003, the technically defunct APC issued another stock certificate to the Eastwood Trust for 648,350 company shares. (Id. ¶ 69.) Around the same time, another of Dr. Demopoulos's companies -- ThyoGen Pharmaceuticals -- gave 400,000 shares to the Eastwood trust. (Id. ¶ 71.) ThyoGen, like APC, had been dissolved by the New York State Department of State on December 26, 2001, without the plaintiffs' knowledge. (Id. ¶ 64.)

On February 9, 2006, the Eastwood Trust loaned$ 125,000 to Dr. Demopoulos "to support Dr. Dempoulos'[s] glutathione pursuits." (Id. ¶ 72.)

In addition to APC, Dr. Demopoulos had a number of businesses that operated in the medical products space. In December 2011, two of Dr. Demopoulos's businesses, The Glutathione Corporation and the Redox &Signaling Pharmaceutical Holdings Corporation, issued over a million shares in their respective companies to the Eastwood Trust. (Id. ¶ 75.)

In late 2014, defendant Kevin Davis began working with Dr. Demopoulos. (Id. ¶ 79.) The plaintiffs allege that Davis was brought on to consolidate Dr. Demopoulos's businesses. (Id. ¶¶ 81-82.) Davis sought to create a "more efficient corporate structure" by organizing Dr. Demopoulos's businesses under one corporate umbrella. (Id. ) MDC New York was created around that time to help facilitate that goal. (Id. ¶¶ 5, 81-82.) The plaintiffs claim that this was when the defendants began to assert "control and authority over Dr. Demopoulos'[s] glutathione business and tangible and intangible property, such as the U.S. APC Patents and International APC Patents." (Id. ¶ 80.)

On February 9, 2016, Dr. Demopoulos suffered a "massive stroke

." (Id. ¶ 91.)

The U.S. APC Patents remained in the name of APC -- despite the company's being defunct -- until 2016. (Id. ¶¶ 90, 94.) In late February 2016, defendant MDHwas formed. (Id. ¶ 94.) In February or March 2016, MDH and APC entered into a subscription agreement whereby APC transferred all right, title, and interest in the U.S. APC Patents to MDH in exchange for ten membership units in MDH. (Id. ¶¶ 94-95.) Dr. Demopoulos, as CEO of APC, signed the subscription agreement on behalf of APC. (Id. ¶ 97.)³ An unidentified manager signed on behalf of MDH. (Id. ¶ 99.) APC did not hold a shareholder vote to consent to or ratify the assignment. (Id. ¶ 103.) The plaintiffs also allege that APC did not actually receive membership units from MDH. (Id. ¶ 106.)

On June 20, 2016, Dr. Demopoulos and Davis filed a nonprovisional patent application with the USPTO for patent number 9,901,611 ("the '611 patent"). (Id. ¶¶ 125-26.) Dr. Demopoulos had previously filed a provisional application for this patent on June 19, 2015.⁴ (Id. ¶ 121.) Dr. Demopoulos was listed as the sole inventor on the provisional application.(Id. ¶ 122.) However, the nonprovisional application listed two inventors, Dr. Demopoulos and Davis, and "include[d] additional technical explanations and examples of glutathione treatment, formulations, and methods." (Id. ¶¶ 126, 158.) The complaint does not state whether the provisional application was assigned to any person or company, but the nonprovisional application was assigned to MDC Nevada or MDC New York by Davis.(Id. ¶ 130.) The plaintiffs assert that Dr. Demopoulos never assigned away his interest in the '611 patent. (Pls.' Opp'n at 3.) However, the '611 patent lists MDC New York as the assignee of the patent. (Defs.' Ex. 1.) And the Inventor Substitute Statement for Dr. Demopoulos confirms that Dr. Demopoulos was obligated to assign the '611 patent to MDC. (Defs.' Reply Ex. E.)The plaintiffs do not allege that either the provisional application or the nonprovisional application of the '611 patent were assigned to APC or the Eastwood Trust.

Between June 20, 2016, and November 23, 2016, Dr. Demopoulos and Davis filed applications for two international patents⁵ that are currently pending examination. (Id. ¶ 132.) Both Dr. Demopoulos and Davis were listed as inventors on these applications. (Id. ) The plaintiffs claim that both of the international applications are related to the technology set forth in the APC Patents and that one of the international applications-- number PCT/US/2016/038381 ("the '381 application") --derived from the provisional application for the '611 patent, which listed Dr. Demopoulos as the sole inventor. (Id. ¶¶ 133-34.)

On February 14, 2017, the defendants' lawyers filed with the USPTO the assignment papers by which Dr. Demopoulos and his co-inventor transferred the U.S. APC Patents to APC in 1999. (Id. ¶ 104.) That same day, the attorneys filed with the USPTO...