On April 25, 2012, a federal judge in North Carolina issued a ruling granting in part and denying in part motions to dismiss involving claims for trade secret misappropriation, breach of contract, and conversion in a dispute between two pharmaceutical companies in the case of River’s Edge Pharmaceuticals v. Gorbec Pharmaceutical Services, Inc. This decision confirms, to an extent, the need to plead actual, rather than speculative harm to prevent dismissal for failure to state a claim.
River’s Edge Pharmaceuticals (“River’s Edge”) is a company which distributes pharmaceutical products and aims to provide “reasonably priced alternatives to costly name brand pharmaceuticals.” The company began marketing and developing certain alleged unapproved pharmaceutical products through an FDA approved process known as Drug Efficacy Study Implementation (“DESI”).
In 2007, River’s Edge began working with another pharmaceutical company, Gorbec, to manufacture DESI drugs and test and formulate generic drugs under the Abbreviated New Drug Application (“ANDA”) process. According to the pleadings, the parties agreed to a contract, and agreed the terms would be memorialized in writing, however this was never actually done. River’s Edge began submitting purchase orders to Gorbec, however, and Gorbec performed according to the agreed upon terms.
River’s Edge alleges that beginning in 2010, Gorbec’s executives began making statements about how they owned the “know-how, intellectual property, and regulatory approvals” which River’s Edge had hired and paid them to develop. According to River’s Edge, these statements were made despite the fact that River’s Edge was the actual owner. In addition, Gorbec threatened to stop work on River’s Edge’s products, and made statements of intent to compete with the company. River’s Edge alleges that all of these actions would harm the company and would worsen its chances of getting FDA approval. Gorbec, by contrast, alleged it had agreed to manufacture these drugs based on River’s Edge’s representations and proceeded to do so for three years. However, Gorbec alleges that during that time, River’s Edge received a warning letter from the FDA asking the company to cease sales. River’s Edge allegedly failed to tell Gorbec about it. Gorbec alleges River’s Edge also failed to pay in full for the work they had performed.
River’s Edge filed a complaint against Gorbec and its President, J. Michael Gorman, in the Middle District of North Carolina, requesting declaratory relief, and alleging breach of contract, breach of fiduciary duty, constructive fraud, promissory estoppel, unjust enrichment, conversion, misappropriation of trade secrets, and punitive damages. Gorbec filed a counterclaim, alleging breach of contract, unjust enrichment, negligent misrepresentation, fraud, and unfair and deceptive trade practices.
Both parties recently filed motions to dismiss. Gorbec moved to dismiss all counts of the amended complaint, except for declaratory relief, while River’s Edge moved to dismiss each and every one of Gorbec’s counterclaims.
With regard to breach of contract claim, the court granted Gorbec’s motion in part to the extent the claimed breach was based on Gorbec’s statements of ownership or intent to compete, but denied the motion to the extent the breach alleged pertained to Gorbec’s cessation of ANDA-related work.
Similarly, with respect to the breach of fiduciary duty claim, the court granted the motion to dismiss to the extent the claim was based on Gorbec’s threatened or potential conduct, but denied the motion to the extent the claim was based on Gorbec’s refusal to provide River’s Edge with complete copies of communications with the FDA and info regarding pending ANDAs and said things suggesting ownership of River’s Edge’s intellectual property. The court also dismissed the claims for constructive fraud and unjust enrichment, holding the plaintiff’s allegations failed to state a claim. The court however found that there were sufficient facts to state a claim for both conversion and misappropriation of trade secrets. On the misappropriation of trade secrets cause of action, however, the court held that while there was sufficient facts to state a claim, the burden would be on River’s Edge to show Grobec had the opportunity to acquire, use and disclose such information without consent.
With respect to Gorbec’s counterclaims, the court dismissed the claim for negligent misrepresentation and denied the motion to dismiss for unfair and deceptive trade practices and unjust enrichment, finding sufficient information to state a claim. Additionally, the court found Gorbec had sufficiently alleged a claim for breach of contract regarding the work Gorbec had done for the ANDA process, but dismissed the claim to the extent it was based on River’s Edge’s failure to enter into a marketing agreement. Similarly, the court denied the motion to dismiss the count of fraud to the extent it was based around River’s Edge’s fraudulent concealment of the warning letter, but dismissed the claim to the extent it was based on the idea that River’s Edge formed its own manufacturing company in order to get around its contract.
The Court’s ruling suggests the need to plead with specificity. Here, claims based on speculative damages, and threatened or potential conduct failed to survive dismissal. This confirms the importance of alleging clear harm in one’s pleadings, and shows that to gain a more favorable result for a client, a pleading needs to be framed in such a way that it avoids speculation.