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Concordia Pharmaceuticals Inc. SARL v. Vitae Enim Vitae Scientific Inc.

United States District Court, D. South Carolina, Greenville Division

September 3, 2019

Concordia Pharmaceuticals Inc. SARL; Advanz Pharma Corp., formerly known as Concordia International Corp.; Concordia Pharmaceuticals U.S. Inc., Plaintiffs,
v.
Vitae Enim Vitae Scientific Inc., Charles Cavallino, Boris Gites, Defendants,

          REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE

          Jacquelyn D. Austin, United States Magistrate Judge

         This matter is before the Court on Defendants' motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue. [Doc. 89.] Pursuant to the provisions of 28 U.S.C. § 636(b) and Local Civil Rule 73.02(B)(2)(e), D.S.C., this magistrate judge is authorized to review all pre-trial matters in cases involving litigation by individuals proceeding pro se and to submit findings and recommendations to the District Court.[1]

         Plaintiffs filed this action on April 5, 2019, in the United States District Court for the Southern District of California (the “California District Court”), which, in turn, transferred the case on June 23, 2019, to this Court (the “Transfer Order”). [Docs. 1; 55.] On August 6, 2019, Defendants filed their motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer venue. [Doc. 89.] Plaintiffs filed a response opposing the motion on August 14, 2019, and Defendants filed a reply on August 19, 2019 [Docs. 99[2]; 104.] This motion is now ripe for review.

         BACKGROUND

         The Transfer Order thoroughly sets out the procedural history of this case up to the point of its transfer to this Court:

On April 5, 2019, Plaintiffs Concordia Pharmaceuticals Inc., S.À.R.L. (“Concordia”); Advanz Pharma Corp. (f/k/a/ Concordia International Corp.) (“Concordia International”); and Concordia Pharmaceuticals (US) Inc. (“Concordia US”) (collectively “Plaintiffs”) filed a complaint against Defendants Vitae Enim Vitae Scientific, Inc. (“VEV”), Boris Gites (“Gites”) and Charles Cavallino (“Cavallino”) (collectively “Defendants”) for (1) misappropriation of trade secrets under the Defend Trade Secrets Act of 2016; (2) misappropriation of trade secrets under the California Uniform Trade Secrets Act; (3) violation of California Unfair Competition Law, California Business and Professions Code section 17200 et seq.; (4) tortious interference with prospective economic advantage; (5) tortious interference with contract; (6) conversion; and (7) breach of contract as to Gites and Cavallino. (Dkt. No. 1, Compl.)
Concordia is a specialty pharmaceutical company that sells the Donnatal® brand of products that has helped individuals suffering from abdominal pain, bloating and irregular diarrhea or constipation due to irritable bowel syndrome (“IBS”). (Id. ¶ 13.) Donnatal® pharmaceutical products are a proprietary combination of medicine used as adjunctive therapy in treating IBS as well as acute enterocolitis and is available by prescription only. (Id. ¶14.) The active ingredients in Donnatal® pharmaceutical products are a combination of phenobarbital and belladonna alkaloids (“PBA”). (Id. ¶ 15.) Concordia distributes and markets the Donnatal® products in two forms: . . . immediate release Donnatal® Tablets and fast-acting Donnatal® Elixir, available in grape or mint flavor. (Id. ¶ 16.) Plaintiffs have developed confidential, proprietary, and trade secret information concerning their business and pharmaceutical products, such as “product formulas, manufacturing processes, financial data, and customer information.” (Id. ¶ 18.) Plaintiffs have taken steps to protect their confidential, proprietary and trade secret information. (Id. ¶ 22.)
IriSys LLC, f/k/a IriSys, Inc. (“IriSys”) is a pharmaceutical manufacturer and supplies Concordia with its Donnatal® Elixir products pursuant to a Manufacturing Supply Agreement (“MSA”) dated May 14, 2014. (Id. ¶ 23.) In the MSA, IriSys acknowledged that it would be a recipient of confidential information from Plaintiffs. (Id.) IriSys agreed to hold the confidential information in strict confidence and has taken all reasonable precautions to prevent any unauthorized disclosure. (Id. ¶ 24.) They also agreed that Plaintiffs own the intellectual property rights and inventions, including trade secrets, that relate to Donnatal® Elixir as well as any Product specific improvements developed by either party prior to the term of the agreement. (Id. ¶ 25.)
Plaintiffs claim that Defendants have manufactured and marketed a “knock-off” PBA elixir based on wrongfully obtained intellectual property from Plaintiffs. (Id. ¶ 17.) Defendant Cavallino was Executive Director of Manufacturing at IriSys for five years until July 25, 2017. (Id. ¶¶ 26, 44.) On information and belief, he was responsible for setting up many of the methods and processes for manufacturing the Donnatal® products and for scaling production to commercial levels. (Id. ¶ 27.) Defendant Gites also worked at IriSys for five years and held the titles of Manufacturing Supervisor, Manufacturing Manager, and Acting Manufacturing Head. (Id. ¶ 28.) At certain times, Cavallino was Gites' direct supervisor. (Id.) On information and belief, Gites was responsible for also setting up many of the methods and processes for manufacturing the Donnatal® products and for scaling production to commercial levels. (Id. ¶ 29.)
While employed with IriSys, Cavallino and Gites had access to highly confidential information regarding the Donnatal® products, including manufacturing processes and procedures, vendor information, and material costs. (Id. ¶ 30.) On information and belief, Gites and Cavallino executed non-disclosure agreements with IriSys which prohibited them from disclosing Plaintiff's confidential information. (Id. ¶ 31.)
A. Concordia Entities' Former Employees and Officers
Mark Thompson (“Thompson”) was the founder, Chief Executive Officer, President, and Chairman of the Board of Directors of Concordia International. (Id. ¶ 32.) Thompson was actively involved in Plaintiffs' acquisition of the Donnatal® products in 2014. (Id.) His employment with Concordia International ended on November 30, 2018. (Id. ¶ 33.)
Christopher Blake Kelley (“Kelley”) was the Sales Director for Concordia U.S. and his employment ended on December 30, 2016. (Id. ¶ 34.) Jean-Paul Laurin (“Laurin”) was the Vice President, Commercial Strategy, Americas for Concordia International and his employment ended on January 31, 2017. (Id. ¶ 35.) Aaron Hullett (“Hullett”) was a Vice President and General Manager for Concordia U.S. and his employment ended on January 1, 2017. (Id. ¶ 36.) Thompson, Kelley, Laurin and Hullett, former high-ranking employees of Plaintiffs, each had access to confidential information and trade secrets through the ordinary course of their employment with Plaintiffs. (Id. ¶ 37.) They each signed agreements with Plaintiffs where they promised not to compete against Plaintiffs for one year after the end of their employment with Plaintiffs or use Plaintiffs' confidential information. (Id.)
B. Alleged Conspiracy between Defendants and Plaintiffs' Former Employees and Officers
Cavallino and Gites secretly formed Vitae Enim Vitae Scientific, Inc. (“VEV”) and each are Directors of VEV. (Id. ¶ 38.) No. later than January 4, 2017, Defendants, along with Kelley, Thompson, Laurin and Hullett, conspired to develop and market PBA elixir products that would directly compete with Donnatal® Elixir products. (Id. ¶ 40.) While Gites and Cavallino worked at IriSys and were involved in manufacturing Donnatal® Elixir for Plaintiffs, they were secretly developing their “Donnatal® Generic” product. (Id. ¶ 41.) While working at IriSys and developing competing products, Gites accessed numerous files on IriSys' server. (Id. ¶ 42.) Many of the files were confidential, proprietary and trade secret information related to Donnatal® products. (Id.) For example, the files included the master batch records for manufacturing Donnatal® Elixir, raw material validation procedures and data, equipment validation procedures and data, product cost information, product stability data, and product specification. (Id.) On information and belief, Cavallino, also accessed and used confidential, proprietary and trade secret information belonging to Plaintiffs. (Id. ¶ 43.)
No later than August 2017, VEV agreed to manufacture a PBA elixir product for Lazarus Pharmaceuticals, Inc. (“Lazarus”). (Id. ¶ 45.) Lazarus is a Barbados corporation owned by Thompson and incorporated on July 13, 2017. (Id. ¶ 46.) Kelley, Laurin, Hullet, and Thompson have each performed work for Lazarus. (Id.)
In October 2017, immediately before Defendants produced a stability batch of their PBA elixir product, Gites accessed over 1, 000 files on IriSys' server in quick succession, which is consistent with the copying of such files to external storage devices. (Id. ¶ 47.) The files that Gites accessed concerned the Donnatal® products and included confidential, proprietary, and trade secret information, including information about stability testing of Donnatal® and its raw materials. (Id.) On January 2, 2018, Gites took a one-month paternity leave from his position at IriSys and during his absence, IriSys discovered that Gites had been accessing files containing confidential, proprietary, and trade secret information and that he had apparently been working with Cavallino and VEV. (Id. ¶ 48.) On February 2, 2018, Gites unexpectedly resigned despite still being on paternity leave. (Id. ¶ 49.) At the exit interview, Gites refused to sign an acknowledgement that he would return materials in his possession including “product information, manufacturing information, customer lists or information, employee information, officer's information, company policies and procedures, and financial information.” (Id.)
Plaintiffs believe that Defendants have used and continue to use Plaintiffs' confidential, proprietary, and trade secret information to manufacture pharmaceuticals that compete with their products and to their competitive advantage and to Plaintiffs' detriment. (Id. ¶¶ 50, 51.) Kelley, Thompson, Laurin, and Hullett have each violated their respective employment and separation agreements executed with the respective Plaintiffs based on their work with Defendants. (Id. ¶ 52.)
On information and belief, Defendants and Lazarus are seeking to exploit the reputation and success of Donnatal® Elixir by marketing and selling an unauthorized “generic” version of Donnatal® Elixir. (Id. ¶ 53.) Defendants are marketing their PBA elixir as a generic substitute for the brand drug Donnatal® Elixir. (Id.) Lazarus has listed its PBA elixir on the drug pricing databases published by First DataBank and MediSpan and linked that PBA elixir to Plaintiffs' Donnatal® Elixir with a marketing start date on or around April 20, 2018. (Id. ¶ 54.) The Drug Databases are subscription-based drug information and interactions compendia used nationwide by health care professionals, insurers, payers and pharmaceutical manufacturers and others to evaluate medications that are currently on the market and also whether substitutes are available for brand name products. (Id. ¶¶ 55, 56.)
On information and belief, pharmaceutical products that are labeled as pharmaceutically equivalent are “linked” to one another in the Drug Databases. (Id. ¶ 57.) Defendants' PBA elixir products also appear or will soon appear in drug formularies and pharmaceutical dispensing software of pharmacies. (Id. ¶ 58.) Believing Defendants' PBA elixir products to be demonstrated as therapeutically equivalent and/or FDA-approved as an A-rated generic alternative that is substitutable for Donnatal® Elixir, pharmacists are or will continue to automatically substitute Defendants' PBA elixir products for Donnatal® Elixir when they receive a prescription for Donnatal® Elixir. (Id. ¶ 59.) On information and belief, neither Lazarus nor Defendants have established therapeutic equivalence between their PBA elixir products and Donnatal® Elixir with the FDA. (Id. ¶ 60.) On information and belief, Defendants did not perform any tests to determine whether their PBA elixir products were bioequivalent or therapeutically equivalent to Donnatal® Elixir. (Id. ¶ 61.)
As a result, Plaintiffs have suffered a substantial loss in market share as a direct result of the unlawful entry of Lazarus' PBA elixir products onto the market. (Id. ¶ 62.) Wholesalers and pharmacies have and/or will likely reduce inventories of Donnatal® Elixir as a result of the marketing or availability of Lazarus' PBA elixir products. (Id. ¶ 63.)
C. Prior Related Litigation
1. IriSys v. Gites, No. 2018-00008670, San Diego Super. Ct., Feb. 20, 2018
On February 20, 2018, IriSys filed an action against Gites in San Diego Superior Court for his conduct of misappropriating IriSys' confidential, proprietary and trade secret information related to pharmaceuticals while employed at IriSys from August 2012 until he resigned on February 2, 2018. (Dkt. No. 20-4, Ds' NOL, Ex. 1, IriSys LLC vs. Gites, No. 2018-00008670 (San Diego Super. Ct. filed Feb. 20, 2018), Compl. ¶ 6.) IriSys develops and manufactures pharmaceuticals and has accumulated trade secret and proprietary information concerning the manufacturing of pharmaceuticals. (Id. ¶ 5.) IriSys hired Gites in August 2012 as Manufacturing Supervisor; in December 2016, Gite[s'] job title changed to Manufacturing Manager, and in July 2017, Gites became the Acting Manufacturing Head. (Id. ΒΆ 6.) In his positions, Gites oversaw and implemented manufacturing processes, analytics, and methods developed by the company for various pharmaceuticals and had access to IriSys' and its ...

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