River's Edge Pharms., LLC v. Gorbec Pharm. Servs., Inc.

• Decision Date: 25 April 2012
• Docket Number: 1:10CV991
• Court: U.S. District Court — Middle District of North Carolina
• Parties: RIVER'S EDGE PHARMACEUTICALS, LLC, Plaintiff, v. GORBEC PHARMACEUTICAL SERVICES, INC., and J. MICHAEL GORMAN Defendants.

RIVER'S EDGE PHARMACEUTICALS, LLC, Plaintiff,

v.GORBEC PHARMACEUTICAL SERVICES, INC., and J. MICHAEL GORMAN Defendants.

1:10CV991

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

Dated: April 25, 2012

MEMORANDUM OPINION

This matter is before the Court on the parties' Motions to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendant/Counterclaim Plaintiff Gorbec Pharmaceutical Services, Inc. ("Gorbec") and Defendant J. Michael Gorman¹ ("Gorman") have each filed a Motion to Dismiss [Doc. #56 & #59] the Amended Complaint filed by Plaintiff/Counterclaim Defendant River's Edge Pharmaceuticals, LLC ("River's Edge" or "Plaintiff").² In addition, Plaintiff has filed a Motion to Dismiss [Doc. #70] Gorbec's Amended Counterclaims. The three Motions have been fully briefed and are ready for disposition by the Court.

I. FACTUAL BACKGROUND

This factual background briefly sets forth the allegations as stated in Plaintiff's AmendedComplaint and in Gorbec's Amended Counterclaims.³

A. Plaintiff's Allegations and Claims for Relief

Since its establishment in 2003, Plaintiff has engaged in distributing pharmaceutical products "with the mission of providing reasonably priced alternatives to costly 'name brand' pharmaceuticals." (Am. Compl. ¶ 20). Plaintiff began its work with the development and marketing of certain unapproved products, which, according to Plaintiff, the FDA allows companies to market pending a review process known as Drug Efficacy Study Implementation ("DESI"). In 2007, Plaintiff entered into a business relationship with Gorbec to formulate and manufacture several DESI drugs and to formulate and test certain generic drugs and medical devices pursuant to the Abbreviated New Drug Application ("ANDA") process. Plaintiff alleges that the parties, including Gorbec President and CEO, J. Michael Gorman, discussed and agreed that Gorbec would undertake the ANDA work "for and on behalf of River's Edge, and at River's Edge's expense," and that Plaintiff, only, would retain all interest in the products, the approvals, and the underlying work product. (Am. Compl. ¶ 27). Plaintiff further alleges thatthe parties verbally agreed that they would eventually memorialize their overall agreement in a writing. The parties nevertheless began their relationship with a series of purchase orders specifying the services to be rendered and the payments to be made by the parties.

Plaintiff alleges that, beginning in 2010, Gorbec made statements to Plaintiff that Gorbec, and not Plaintiff, owned the "know-how, intellectual property, and regulatory approvals River's Edge hired and paid Gorbec to develop for River's Edge." (Am. Compl. ¶¶ 27, 33, 36). Plaintiff further alleges that these statements were made despite the fact that, at all times, Plaintiff claimed such ownership. In addition, Plaintiff alleges that Gorbec stopped work on certain ANDA products and threatened to stop FDA required stability testing on the ANDA products. Furthermore, Plaintiff alleges that Gorbec, through counsel, made statements of its intent to compete with Plaintiff and "refused to provide complete copies of communications with the FDA concerning pending ANDAs for River's Edges products." (Am. Compl. ¶¶ 38, 39). Plaintiff alleges that Gorbec's actions have or will cause harm to Plaintiff and its chances of obtaining approval for its ANDA products. Based on all of its allegations, Plaintiff has filed nine Claims for Relief in this case as follows: (1) First Claim for Relief—Declaratory Relief (against Gorbec); (2) Second Claim for Relief—Breach of Contract (against Gorbec); (3) Third Claim for Relief—Breach of Fiduciary Duty (against Gorbec); (4) Fourth Claim for Relief—Constructive Fraud (against Gorbec and Gorman); (5) Fifth Claim for Relief—Promissory Estoppel (against Gorbec and Gorman); (6) Sixth Claim for Relief—Unjust Enrichment (against Gorbec); (7) Seventh Claim for Relief—Conversion (against Gorbec); (8) Eighth Claim for Relief—Misappropriation of Trade Secrets (against Gorbec); and (9) Ninth Claim forRelief—Punitive Damages (against Gorbec and Gorman).

B. Gorbec's Allegations and Amended Counterclaims

Gorbec alleges that it was founded in 2006, "at the urging of Brendan Murphy, the principal of River's Edge," and that the two entities began working together in 2007 on both DESI and ANDA drugs. (Am. Countercl. ¶¶ 8, 9, 10, 31). With regard to the DESI drugs, Gorbec alleges that it was "reluctant to manufacture DESI drugs because the FDA in 2006 had begun barring manufacture of DESI drugs." (Am. Countercl. ¶ 11). However, Gorbec alleges that it agreed to manufacture DESI drugs for Plaintiff based on representations from Plaintiff that it had retained experts who stated that production of such drugs could continue. Gorbec further alleges that it "would not have agreed to manufacture DESI drugs or agreed to continue the manufacture of DESI drugs but for the express representations of River's Edge that it would be allowed to continue to sell DESI drugs." (Am. Countercl. ¶ 88). Gorbec manufactured DESI drugs for Plaintiff from 2007 until July of 2010, at which time Gorbec alleges it became aware, via the FDA website, of a warning letter from the FDA ordering Plaintiff to stop selling DESI drugs. Gorbec alleges that Plaintiff had received the letter from the FDA in May of 2010, but did not tell Gorbec about it at that time. As a result, Gorbec alleges that it incurred costs associated with continued manufacturing of DESI drugs between May 2010 and July 2010, for which Gorbec alleges Plaintiff failed to pay in full. In addition, Gorbec alleges, based on information and belief, that Plaintiff transferred DESI manufacturing to another entity to continue producing the drugs in violation of the FDA warning letter. Gorbec alleges that, as a result of the two-month period during which Gorbec continued manufacturing DESI drugs,Gorbec suffered potential harm to its reputation with the FDA. Furthermore, Gorbec alleges that Plaintiff's alleged conduct in continuing to manufacture DESI drugs with another entity has jeopardized the approval of the ANDA products on which Gorbec has worked.

With regard to Gorbec's ANDA work, Gorbec alleges that it verbally agreed to "work together [with River's Edge] to develop new drugs for FDA approval through the ANDA process and that Gorbec would manufacture any drugs that were eventually approved." (Am. Countercl. ¶ 49). Gorbec alleges that the ANDA work was done pursuant to purchase orders, and that Plaintiff agreed to pay for the work done, including stability testing costs, costs associated with required FDA deficiency work, and "pass through" costs, such as laboratory reagents and equipment. (Am. Countercl. ¶¶ 52, 53). Gorbec also alleges that the parties agreed to enter into a manufacturing agreement whereby Gorbec would manufacture any drugs eventually approved by the FDA. Gorbec alleges that Plaintiff failed to pay some or all of the money owed to Gorbec for the ANDA work and that Plaintiff failed to enter in a manufacturing agreement with Gorbec.

Furthermore, Gorbec alleges an agreement, entered into on October 12, 2010, which "was intended to reconcile existing differences between the parties," related to Gorbec's ANDA work. (Am. Countercl. ¶ 56). In addition, Gorbec alleges the existence of a subsequent separation agreement, entered into on November 30, 2010, wherein the parties agreed to certain terms of separation. Gorbec alleges that Plaintiff failed to meet its obligations under both agreements. Based on all of its allegations, Gorbec has filed six Amended Counterclaims against Plaintiff as follows: (1) First Amended Counterclaim—Breach of Contract—DESI drugs; (2)Second Amended Counterclaim—Breach of Contract—ANDAs; (3) Third Amended Counterclaim—Unjust Enrichment; (4) Fourth Amended Counterclaim—Negligent Misrepresentation; (5) Fifth Amended Counterclaim—Fraud; and (6) Sixth Amended Counterclaim—Unfair and Deceptive Trade Practices.

II. LEGAL STANDARD

In reviewing Motions to Dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court must "'take the facts in the light most favorable to the [non-moving party],' but '[it] need not accept the legal conclusions drawn from the facts,' and '[it] need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.'" Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting Eastern Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000)). The Supreme Court, in Ashcroft v. Iqbal, noted that "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007)). In this regard, the Iqbal Court noted that Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief," but Rule 8 "does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 677-78, 678-79, 129 S. Ct. at 1949, 1950. Pleadings containing "labels and conclusions," "a formulaic recitation of the elements of a cause of action," or "'naked assertion[s]' devoid of 'further factual enhancement,'" will not survive a motion to dismiss. Id. at 678, 129 S. Ct. at 1949 (citations omitted).Rather,"[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. . . . Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (citations omitted). Thus, dismissal of a complaint...