Ethypharm S.A. France v. Bentley Pharmaceuticals

• Decision Date: 26 September 2005
• Docket Number: No. 04-1300-SLR.,04-1300-SLR.
• Citation: 388 F.Supp.2d 426
• Parties: ETHYPHARM S.A. FRANCE and Ethypharm S.A. Spain, Plaintiffs, v. BENTLEY PHARMACEUTICALS, INC., Defendant.
• Court: U.S. District Court — District of Delaware

388 F.Supp.2d 426

ETHYPHARM S.A. FRANCE and Ethypharm S.A. Spain, Plaintiffs, v. BENTLEY PHARMACEUTICALS, INC., Defendant.

No. 04-1300-SLR.

United States District Court, D. Delaware.

September 26, 2005.

COPYRIGHT MATERIAL OMITTED

Francis J. Murphy, Esquire, of Murphy Spadaro & Landon, Wilmington, DE, for Plaintiffs. Of Counsel: Dwight P. Bostwick, Esquire, of Baach Robinson & Lewis, Washington, DC.

Richard L. Horwitz, Esquire, and David E. Moore, Esquire of Potter Anderson & Corroon, Wilmington, DE, for Defendant. Of Counsel: Craig E. Stewart, Esquire, and Marc J. Goldstein, Esquire, of Palmer & Dodge, Boston, MA.

MEMORANDUM OPINION

SUE L. ROBINSON, Chief Judge.

I. INTRODUCTION

On September 27, 2004, plaintiffs Ethypharm S.A. France and Ethypharm S.A. Spain filed this suit against defendant Bentley Pharmaceuticals, Inc. alleging fraud, violation of the Delaware Uniform Trade Secret Act ("DUTSA"), unjust enrichment and intentional interference with actual and prospective business relationships. (D.I. 1)

The court has jurisdiction over this action pursuant to 28 U.S.C. § 1332. Pending before the court is defendant's motion to dismiss for failure to join an indispensable party, pursuant to Fed. Rule Civ. P. 19(a) and (b), and to dismiss counts one, three and four as preempted by the DUTSA. (D.I. 9)

II. BACKGROUND

Plaintiff Ethypharm S.A. France is a French corporation with its principal office in France. (D.I. 1 at ¶ 27) Plaintiff Ethypharm S.A. Spain is a majority owned subsidiary of Ethypharm S.A. France organized under the laws of Spain with its principal office in Madrid. (D.I. 1 at ¶ 28) Plaintiffs are engaged in developing proprietary drug delivery systems and formulating, clinically testing, registering, manufacturing, marketing and licensing pharmaceutical products based on their drug delivery systems. (Id.) Defendant Bentley Pharmaceuticals, Inc. is a Delaware corporation in the pharmaceutical industry. (D.I. 1 at ¶ 4) Belmac S.A. ("Belmac") is a wholly-owned Spanish subsidiary of defendant. (D.I. 1 at ¶ 5)

According to plaintiffs, in the early 1990's, they entered into an arrangement with defendant Bentley "directly and through Bentley's agent ... Belmac." (D.I. 1 ¶ 5) According to the arrangement, plaintiffs supplied access to intellectual property and trade secrets regarding the production, manufacture and sale of Omeprozole and other products.¹ (D.I. at ¶ 6) According to the complaint, in exchange for plaintiffs' information and machinery, Omeprozole was manufactured exclusively for plaintiffs at Belmac's facilities in Spain. (D.I. 1 at ¶ 54, 53, 59) Plaintiffs allege this arrangement was negotiated by defendant "directly and through its agent, Belmac." (D.I. 1 at ¶ 53) Specifically, plaintiffs allege James Murphy, as an officer of defendant, visited Spain and France to meet with plaintiffs' representatives to discuss the arrangement. (D.I. 1 at ¶ 49) Plaintiffs assert that Belmac entered into the arrangement at defendant's direction and as part of a unified business strategy developed by defendant. (D.I. 1 at ¶ 63) Plaintiffs assert that "[a]t all times relevant to this complaint, Belmac S.A. has acted as Bentley's agent with actual and/or apparent authority in its interactions and communications with Ethypharm." (D.I. 1 at ¶ 63)

In its motion to dismiss, defendant argues the arrangement with plaintiffs was negotiated completely by Belmac and Belmac was not acting on defendant's behalf. (D.I. 10 at 3) According to defendant, at the time of the relationship between Belmac and plaintiffs, defendant had no role in the day-to-day operations of Belmac and did not participate in the business relationship between Belmac and plaintiffs. (D.I. 10 at 3) In support of this assertion, defendant attached to its motion declarations by Adolfo Herrera, the general manager of Belmac, and James Murphy, chairman, president, chief executive officer and a director of defendant. (D.I. 11 at A-42, A-101) Defendant further asserts that the contracts and negotiations between Belmac and plaintiffs were conducted on behalf of Belmac by its general manager, Adolfo Herrera, and his predecessors. (D.I. 10 at 3) According to defendant, it had no rights, obligations, or duties under any agreements executed by Belmac with plaintiffs. (D.I. 11 at 3) Furthermore, defendant asserts "Belmac never acted on Bentley's behalf during these negotiations or during contracting with Ethypharm." (Id.)

Belmac manufactured Omeprazole for plaintiffs from 1992 through 2002.² (D.I. 1 at ¶ 10, 84) Plaintiffs assert that during this time, "Bentley and its agent, Belmac S.A., clearly and repeatedly confirmed and acknowledged that the machinery, know-how, processes, and technology used in the manufacturing of Omeprazole were proprietary to Ethypharm." (D.I. 1 at ¶ 62) For example, plaintiffs state that Belmac employees were required to sign confidentiality statements to that effect. (Id.) Plaintiffs assert that "Bentley has been lying to the public and to Bentley's shareholders to create the false and misleading impression that Bentley, rather than Ethypharm, holds a proprietary interest in the technology, trade secrets, know-how ... relating to the manufacture and sale of Omeprazole." (D.I. 1 at ¶ 68) Plaintiffs assert that "Bentley and its agent, Belmac S.A., embarked on a bold scheme to steal Ethypharm's machinery, know-how, trade secrets, technology, ... processes, formulae, and analytical methods." (D.I. 1 at ¶ 84)

Defendant counters, by way of declaration, that shortly after Belmac began to manufacture Omeprazole, Belmac discovered that plaintiffs' patented process was not adequate and, thus "proceeded to develop its own manufacturing process, utilizing its own funds, including conducting all necessary clinical trials." (D.I. 11 at 4) Furthermore, defendant asserts it had no involvement in these efforts by Belmac. (Id.) Defendant states that Belmac eventually developed a successful organic process and formulation for manufacturing Omeprazole. (Id.)

III. STANDARD OF REVIEW

Because the parties have referred to matters outside the pleadings, defendant's motion to dismiss shall be treated as a motion for summary judgment. See Fed.R.Civ.P. 12(b)(6). A court shall grant summary judgment only 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 judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of proving that no genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "Facts that could alter the outcome are `material,' and disputes are `genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir.1995) (internal citations omitted). If the moving party has demonstrated an absence of material fact, the nonmoving party then "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S.Ct. 1348 (quoting Fed.R.Civ.P. 56(e)). The court will "view the underlying facts and all reasonable inferences therefrom in the light most favorable to the party opposing the motion." Pa. Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir.1995). The mere existence of some evidence in support of the nonmoving party, however, will not be sufficient for denial of a motion for summary judgment; there must be enough evidence to enable a jury reasonably to find for the nonmoving party on that issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the nonmoving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

IV. DISCUSSION

If Belmac is deemed a necessary and indispensable party under Fed.R.Civ.P. 19, diversity jurisdiction would be extinguished and the case dismissed.³ To avoid dismissal, plaintiffs have asserted an agency theory. If plaintiffs can establish that Belmac acted as an agent of defendant, defendant would be held vicariously liable for Belmac's acts. Plaintiffs, in their briefs, do not contest that Belmac is a necessary and indispensable party under a Rule 19 analysis. Rather, plaintiffs assert that Belmac is the agent of defendant and therefore, need not be joined. The court concludes discovery is necessary to develop this claim.

A. Joinder of Indispensable Parties

Federal Rule of Civil Procedure 19 dictates when potential parties to an action must be joined. The rule requires a two-step process. First, a court must determine whether a party is "necessary." See Fed.R.Civ.P. 19(a). A party is necessary when,

in the person's absence complete relief cannot be accorded among those already parties, or ... the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may... impede the person's ability to protect that interest or... leave any of the persons already parties subject to substantial risk of incurring ... inconsistent obligations by reason of the claimed interest.

Fed.R.Civ.P. 19(a). Second, if diversity jurisdiction would be destroyed by the joinder of a necessary party, the court must determine if the potential party is an indispensable party. See Fed.R.Civ.P. 19(b). When deciding whether a party is indispensable, a court should consider four factors:

[F]irst, to what extent a judgment rendered in the person's absence might be prejudicial to ......