St. John's Univ. v. Bolton

• Decision Date: 10 December 2010
• Docket Number: No. 08–CV–5039 (NGG)(JMA).,08–CV–5039 (NGG)(JMA).
• Citation: 757 F.Supp.2d 144
• Parties: ST. JOHN'S UNIVERSITY, NEW YORK, Plaintiff,v.Sanford M. BOLTON, Hygrosol Pharmaceutical Corp., and Spiridon Spireas, Defendants.
• Court: U.S. District Court — Eastern District of New York

757 F.Supp.2d 144

ST. JOHN'S UNIVERSITY, NEW YORK, Plaintiff,
v.
Sanford M. BOLTON, Hygrosol Pharmaceutical Corp., and Spiridon Spireas, Defendants.

No. 08–CV–5039 (NGG)(JMA).

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

Dec. 10, 2010.

[757 F.Supp.2d 152]

Michael Joseph Keane, John E. Becker, Garfunkel Wild P.C., Great Neck, NY, for Plaintiff.Mark A. Berman, Hartmann Doherty Rosa Berman & Bulbulia, LLC, River Edge, NJ, John M. Lundin, Schlam Stone & Dolan LLP, New York, NY, for Sanford M. Bolton.George A. Tsougarakis, Hughes Hubbard & Reed, New York, NY, for Hygrosol Pharmaceutical Corp., Spiridon Spireas.

MEMORANDUM & ORDER NICHOLAS G. GARAUFIS, District Judge.

St. John's University (“Plaintiff” or “St. John's” or “the University”) brings this action alleging that Sanford Bolton (“Bolton”) and Spiridon Spireas (“Spireas”) deliberately concealed, for nearly thirteen years, the fact that research they had conducted at the University had yielded patentable inventions to which the University was legally entitled. Bolton, Spireas, and Hygrosol Pharmaceutical Corp. (“Hygrosol”) (collectively, “Defendants”) move to dismiss the claims raised in the Complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(b) for failure to state a claim for which relief may be granted and failure to plead fraud with particularity.

For the reasons set forth below, Defendants' motions are denied.

I. FACTUAL ALLEGATIONS ¹A. The Parties

Bolton was a professor at St. John's from 1980 through his retirement in June 1994. (Compl. (Docket Entry # 13) ¶¶ 28, 43.) From 1985 through 1991, Bolton was the chairman of the Department of Pharmacology and Administrative Sciences in the St. John's College of Pharmacy and Allied Health Professions. ( Id. ¶¶ 43–44.) As part of his responsibilities as an employee and faculty member at St. John's, Bolton conducted research of his own and directed the research of graduate students. ( Id. ¶¶ 23–26, 46–47.)

One such graduate student was Spireas, who completed a master's degree at St. John's College of Pharmacy and Allied Health Professions in September 1988, and a doctoral degree at St. John's in February 1993. ( Id. ¶¶ 20, 22.) In his capacity as a faculty member, Dr. Bolton advised and directed Spireas in his doctoral dissertation research. ( Id. ¶¶ 22–27.)

[757 F.Supp.2d 153]

B. Research into Liquisolid Systems and the Patents at Issue

Spireas's doctoral dissertation research at St. John's involved “liquisolid compacts,” also known as “liquisolid systems,” which are terms used to describe the powdered forms of liquid medications. (McElroy Decl. (Docket Entry # 37–1) Ex. H at i-ii.) ² Liquid lipophilic and water-insoluble solid drugs can be converted to powdered form “by a simple admixture with selected powder excipients referred to as the carrier ( e.g., cellulose) and coating ( e.g., silica) materials.” ( Id. at ii.) This admixture, the “liquisolid system,” enhances the drug's “release profile” because “the wetting properties and/or surface of the drug available for dissolution are increased.” ( Id.) But practical application of this principle had been hampered by “erratic flow and compression properties of the final admixtures.” ( Id.)

Spireas theorized that “carrier and coating materials can retain only certain amounts of liquid while at the same time maintaining acceptable flow and compression properties.” ( Id.) Spireas confirmed this hypothesis through testing, and created a mathematical model to describe the amount of liquid that a particular liquisolid system could retain while maintaining acceptable flow and compression properties. ( Id.) In demonstrating the validity of his model, Spireas produced liquisolid tablets of commercially available drugs, which in some cases exhibited “significantly higher drug release rates than those of their commercial counterparts.” ( Id. at ii-iii.)

Beginning in approximately January 1991 Spireas conducted at least some of this research off-campus at facilities owned by a third party, Ciba–Geigy Corporation (“Ciba–Geigy”). (Compl. ¶¶ 78–86.) While St. John's policies generally prohibited graduate students from conducting research off-campus, (McElroy Decl. Ex. F), Bolton helped Spireas obtain special permission from St. John's allowing him to use Ciba–Geigy's facilities for his dissertation research (Compl. ¶¶ 78–89). In a February 1991 letter to St. John's confirming that Ciba–Geigy had given Spireas permission to use its facilities, Ciba–Geigy stated that Spireas had confirmed that “the project will be directed by Dr. Sanford Bolton.” (McElroy Decl. Ex. E.) Bolton likewise represented to St. John's in a March 1991 memorandum that he would be directing Spireas's research at Ciba–Geigy. (Compl. ¶ 82.) In the acknowledgments section of his dissertation, Spireas thanked his “major advisor, Dr. Sanford Bolton for his invaluable guidance, unlimited encouragement and support during the course of this project,” and Ciba–Geigy, “for offering [him] the unique opportunity to conduct most of this research in their laboratories” and allowing him to use its “ ‘state of the art’ equipment.” (McElroy Decl. Ex. H at v.)

Spireas submitted his doctoral dissertation in December 1992 ( id. at i), and it was approved by Bolton in January 1993 ( id.). Spireas received his doctorate from St. John's in February 1993 (Compl. ¶ 27). In June 1993, Bolton submitted his notice of retirement to St. John's, and his teaching duties at the University ended in June 1994. ( Id. ¶ 24.)

[757 F.Supp.2d 154]

Bolton and Spireas filed their first patent application in June 1996 as joint inventors,³ and their research at the University allegedly resulted in inventions which are the subjects of at least four patents. ⁴ ( Id. ¶¶ 29–38; McElroy Decl. Exs. A–D.) Each of the four patent applications was entitled “Liquisolid systems and methods of preparing same,” and Bolton and Spireas were both listed as inventors for all but one of the resulting patents (collectively, the “Liquisolid Patents”). (Compl. ¶¶ 29–32.)

C. Hygrosol and Defendants' Efforts to License the Liquisolid Patents

Bolton and Spireas formed Hygrosol in January 1997 and have been its only shareholders from its inception. ( Id. ¶¶ 156, 161–62, 313.) Bolton and Spireas assigned all four Liquisolid Patents to Hygrosol, allegedly without fair consideration. ( Id. ¶¶ 156–57, 162, 313, 316.) Hygrosol then entered into agreements to license one or more of the Liquisolid Patents to a third party not named as a party in this action. ( Id. ¶ 158.) Hygrosol has received at least $100 million in revenue from the licensing agreements, which has been transferred to Bolton and Spireas, and most of which Defendants received after January 2006. ( Id. ¶¶ 159–60, 162.)

D. The Agreements

St. John's was a party to four agreements with Bolton and Spireas (collectively, the “Agreements”) which determined the rights and interests of the parties in intellectual property created using St. John's facilities and other resources. These Agreements were: (1) the Patent Policy; (2) the Bolton Research Agreement; (3) the Spireas Fellowship Agreements; and (4) the Ciba–Geigy Agreement.

1. The Patent Policy

The St. John's College of Pharmacy and Allied Health Professions had a Patent Policy (the “Patent Policy”) that governed “the ownership of inventions resulting from research conducted by St. John's faculty and students.” ( Id. ¶ 13.) The Patent Policy “was applicable to all faculty members, research/teaching fellows, graduate students, and doctoral students, at the St. John's College of Pharmacy and Allied Health Professions” from before 1984 to 1994. ( Id. ¶ 15.) The Patent Policy applied to both Bolton and Spireas, both had notice of the Patent Policy, Spireas agreed to the Patent Policy as a condition of his enrollment as a graduate student,

[757 F.Supp.2d 155]

and both Bolton and Spireas agreed to it as a condition of their employment by St. John's. ⁵ ( Id. ¶¶ 16–19, 45, 71–74.)

Under the Patent Policy, Bolton and Spireas were contractually obligated to assign to St. John's

all patentable inventions, discoveries, processes, uses, products, or combinations resulting, in whole or in part, from any of (a) the use of the laboratories or other facilities of [St. John's], (b) services rendered by faculty to [St. John's], (c) research conducted by graduate students or doctoral candidates under the direction of [St. John's] faculty, or (d) any related or predicate research ....

( Id. ¶¶ 14, 46, 51, 75.)2. The Bolton Research Agreement

In addition to the Patent Policy, Bolton signed an agreement with St. John's in June 1984 that governed the financial relationship between St. John's and Bolton regarding his research activities at St. John's (the “Bolton Research Agreement”). ( Id. ¶ 47; Lundin Decl. (Docket Entry 36–1 and 36–2) Ex. 3.) ⁶ The Agreement restated Bolton's obligation under the Patent Policy to assign to St. John's all patentable inventions “resulting from research and research related services performed by Bolton at [St. John's].” (Compl. ¶¶ 47–48; Lundin Decl. Ex. 3.) However, the Agreement contained an additional clause in which the parties agreed that Bolton and St. John's would split the revenues “derived from the sale or licensing of such inventions, patent applications and patents ... with (a) 30% for St. John's University and (b) 70% for Dr. Bolton and any student or other person whom Dr. Bolton determines has an interest herein.” (Lundin Decl. Ex. 3.) The Bolton Research Agreement further obligated Bolton to “endeavor with reasonable diligence to secure the necessary patents and use his efforts to introduce such inventions, patent applications, and patents into public use and secure a reasonable revenue therefrom by issuing licenses thereunder or otherwise.” (Lundin Decl. Ex. 3.)

3. The Spireas Fellowship Agreements

Spireas also executed an agreement with St. John's in April 1988, under which Spireas was granted a paid doctoral fellowship with...