De Simone v. VSL Pharmaceuticals, Inc. et al
Filing
267
MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 1/5/2017. (kns, Deputy Clerk)
UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
CLAUDIO DE SIMONE,
Plaintiff/Counterclaim
Defendant,
v.
VSL PHARMACEUTICALS, INC., and
SIGMA-TAU PHARMACEUTICALS, INC.,
Defendants/Counterclaim
Plaintiffs,
Civil Action No. TDC-15-1356
v.
EXEGI PHARMA, LLC,
DANISCO USA, INC., and
MENDES SA,
Third-Party Defendants.
MEMORANDUM
OPINION
Presently pending are Plaintiff Claudio De Simone's Motion to Dismiss the Counterclaim
of Defendant VSL Pharmaceuticals, Inc. ("VSL"), Third-Party Defendant ExeGi Pharma, LLC's
("ExeGi") Motion to Dismiss VSL's Counterclaim, and the joint Motion to Dismiss Counts III,
IV, VII, and VIII of the Counterclaim of Defendant Sigma-Tau Pharmaceuticals,
Tau") filed by De Simone and ExeGi (collectively "the De Simone Parties").
the submitted materials, the Court finds no hearing necessary.
Inc. ("Sigma-
Having reviewed
See D. Md. Local R. 105.6. For
the following reasons, the Motions to Dismiss are GRANTED IN PART and DENIED IN
PART.
DISCUSSION
The factual background of this case is set forth in the Court's September 23, 2015
Memorandum Opinion on the First Motion for a Preliminary Injunction, De Simone v. VSL
Pharm., Inc., 133 F. Supp. 3d 776, 780-88 (D. Md. 2015), and June 20, 2016 Memorandum
Opinion on the Second Motion for a Preliminary Injunction, De Simone v. VSL Pharm., Inc., No.
TDC-15-1356, 2016 WL 3466033 at *1-12 (D. Md. June 20, 2016). Additional facts and
procedural history are provided below as necessary.
I.
Legal Standard
To defeat a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). A claim is plausible when the facts pleaded allow "the Court to draw the
reasonable inference that the defendant is liable for the misconduct alleged."
Id
Legal
conclusions or conclusory statements do not suffice. Id The Court must examine the complaint
as a whole, consider the factual allegations in the complaint as true, and construe the factual
allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268
(1994); Lambeth v. Bd ofComm'rs
of Davidson Cty., 407 F.3d 266, 268 (4th Cir. 2005). To the
extent that VSL alleges fraud, those claims are subject to the heightened pleading standards of
Rule 9(b). See Fed. R. Civ. P. 9(b) ("In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake."). Under this heightened pleading
standard, VSL must allege "the time, place, and contents" of the fraudulent representation, the
identity of the person who made the misrepresentation, and "what he obtained thereby."
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999).
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II.
Extrinsic Evidence
In his Motion, De Simone relies on documents attached as exhibits to his brief, in
particular, (l) documents from litigation before the United Kingdom High Court of Justice,
Chancery Division, between De Simone and Actial Farmaceutica LDA ("Actial"), a corporate
affiliate of VSL (the "UK Litigation"), including an affidavit filed by Actial's
counsel on
December 8, 2014 ("the Actial Affidavit") and the judgment by the court ("the UK Judgment")
issued on March 31, 2015. "[A]s a general rule, extrinsic evidence should not be considered at
the 12(b)(6) stage." Am. Chiropractic Assoc., Inc. v. Trigon Healthcare Inc., 367 F.3d 212,234
(4th Cir. 2004) (internal quotation marks and citation omitted). A court may consider documents
attached to a motion to dismiss only if those documents were "integral to and explicitly relied on
in the complaint," if the plaintiff had "actual notice" of those documents, and if the plaintiff does
not challenge their authenticity. Id This standard is not met here.
As to the documents from the UK Litigation, although VSL references that lawsuit in its
Counterclaim,
it does not include the UK Judgment or the Actial Affidavit
as exhibits.
Undeterred, De Simone argues that the Court should consider the UK Judgment because VSL
"intended to attach" it to its Counterclaim, but mistakenly attached an Order dated May 7, 2015
instead. De Simone Mot. Dismiss VSL Countercl. at 6 n. 1, ECF No. 177. This argument lacks
either factual or legal support.
Moreover, the UK Litigation is not so central to VSL's claims
that the judgment and affidavit could be deemed integral to the Counterclaim.
VSL marshals the
UK Litigation for the dubious purpose of convincing this Court of the validity of its claims based
on a foreign court's acceptance of some of its arguments in a related matter, but VSL would not
"unquestionably
[have] to offer" the UK Judgment or the Actial Affidavit to sustain its
Counterclaim here. Fudge v. Penthouse Int'l., Ltd, 840 F.2d 1012, 1015 (lst Cir. 1988). De
3
Simone's use of the UK Litigation documents in his Motion to Dismiss is a response in kind,
amounting to an unpersuasive preclusion argument based on a ruling by a foreign court. Cf
Andes v. Versant Corp., 878 F.2d 147, 149 (4th Cir. 1989) ("The Full Faith and Credit Clause of
Article IV ~ 1 of the Constitution of the United States does not apply to foreign judgments.").
De Simone has offered no precedent for taking judicial notice on a motion to dismisg of a
document such as the Actial Affidavit, which was filed in a foreign court in litigation to which
VSL was not a party. Where to do so would circumvent the purposes of a Rule 12(b)(6) motion
to assess the sufficiency of the complaint rather than litigate the facts, the Court rejects De
Simone's request and will not consider these extrinsic documents in evaluating the pending
Motions.
As for the September 18, 2009 Board Meeting Minutes, that document was not
mentioned at all by VSL in its Counterclaim and thus cannot be deemed to be integral to and
explicitly relied on in the Counterclaim. Even if De Simone is correct that those minutes defeat
one or more ofVSL's claims, VSL has not yet had an opportunity to test the authenticity of that
evidence or to adduce contradictory evidence through discovery. The Court therefore declines to
consider that exhibit or other extrinsic materials.
III.
Choice of Law
The applicable law on VSL's counterclaims differs depending on the cause of action. On
VSL's federal Lanham Act claims, this Court applies federal law as interpreted by the United
States Court of Appeals for the Fourth Circuit.
For the state law causes of action, this Court applies the choice-of-Iaw principles of the
forum state, in this case, Maryland. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);
4
Branhaven, LLC v. BeefTek, Inc., 965 F. Supp. 2d 650, 664 (D. Md. 2013) ("When a claim is
based on state law, the choice of law rules are those of the state in which the district court sits.").
For common law torts, Maryland applies the law of the state in which the injury occurred.
Lab. Corp. of Am. v. Hood, 911 A,2d 841, 845 (Md. 2006). Here, the alleged torts are civil
conspiracy, fraud, tortious interference with a business relationship, usurpation of a corporate
opportunity, conversion, unjust enrichment, tortious interference with economic relations, and
tortious interference with prospective economic advantage. The injuries resulting from. these
torts are economic, rather than personal, so are traditionally interpreted as accruing where the
injured party resides. See 21 M.L.E. Torts ~ 2 ("The place of injury means the place where the
injury was suffered rather than the place where the wrongful act took place[.]"); Restatement
(Second) of Conflict of Laws ~ 145 (Am. Law Inst. 1971) ("The effect of the loss, which is
pecuniary in its nature, will normally be felt most severely at the plaintiffs headquarters or
principal place of business.").
Furthermore, "[w]hen a person sustains loss by fraud, the place
of wrong is where the loss is sustained, not where fraudulent representations are made."
Restatement (First) of Conflict of Laws ~ 377 nA (Am. Law Inst. 1934); see also Lab. Corp. of
Am., 911 A,2d at 845 (noting that Maryland courts follow the principles stated in the Restatement
(First) of Conflict of Laws).
VSL is headquartered in Virginia, so the Court applies Virginia law to its common law
tort claims. Sigma-Tau is headquartered in Maryland, so the Court applies Maryland law to its
common law tort claims. Although the parties have proceeded under the assumption that
Maryland law applies to all the claims, the Court notes that there is no appreciable difference
between Maryland law and Virginia law as to the causes of action at issue here, so the Court's
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choice of law does not alter its determination as to the viability of VSL's or Sigma-Tau's
common law tort claims.
As for contract claims, Maryland courts follow the principle of lex loci contractus, under
which the applicable law is that of the jurisdiction where the contract was made. See, e.g.,
Allstate Ins. Co. v. Hart, 611 A.2d. 100, 101 (Md. 1992). However, if a contract contains a
choice-of-Iaw provision, Maryland courts will apply the law stipulated to in that provision,
because "parties to a contract may agree to the law which will govern their transaction, even as
to an issue going to the validity of the contract." Kunda v. C.R. Bard, Inc., 671 F.3d 464, 469
(4th Cir. 2011) (citing Kronovet v. Lipchin, 415 A.2d 1096, 1104 (Md. 1980)). Accordingly, for
contract interpretation and claims of breach, this Court applies the law specified by the parties in
the agreement and, in the absence of a choice-of-Iaw provision, applies the law of the jurisdiction
where the contract was formed.
On a claim for breach of fiduciary duty, which involves "a matter peculiar to the
relationships among and between the corporation and its directors," Maryland courts apply the
law of the state of incorporation. See Storetrax.com, Inc. v. Gurland, 895 A.2d 355, 372-73 (Md.
Ct. Spec. App. 2006), aff'd 915 A.2d 991 (Md. 2007) (holding that because the plaintiff
corporation was incorporated in Delaware, the trial court erred in not applying Delaware law to
its claim that the defendant had breached his fiduciary duty, but finding that such error was
harmless); Restatement (Second) of Conflict of Laws
S
309 ("The local law of the state of
incorporation will be applied to determine the existence and extent of a director's or officer's
liability to the corporation(.]"). VSL is incorporated in Delaware, so this Court applies Delaware
law to its breach of fiduciary duty claim.
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As for procedural issues on the common law claims, such as the running of the statute of
limitations, this Court applies Maryland law, because "the statute of limitations of the forum
state applies even when that state's choice-of-Iaw rules require that another state's substantive
law be applied." Sherwin-Williams Co. v. Artra Group, Inc., 125 F. Supp. 2d 739, 756-57 (D.
Md. 2001); see Lewis v. Waletzky, 31 A,3d 123, 133 (Md. 2011) (holding that Maryland law
controls procedural matters and that "statutes of limitations are procedural for choice-of-Iaw
purposes"). In Maryland, civil suits must be filed within three years from the date the action
accrues. Md. Code Ann., Ct. & Jud. Proc. 9 5-101 (West 2011).
IV.
Know-HowClaims
The origins of the present dispute trace back to United States Patent number 5,716,615
("the 615 Patent") obtained in 1998 by De Simone and two other researchers for pharmaceutical
compositions used in the probiotic VSL#3. The 615 Patent expired in February 2015, so the core
of this dispute is the ownership of certain "know-how" ("the Know-How") associated with that
patent, consisting of a unique biochemical profile, formulae, data processes, data, and other
technical and non-technical information necessary to make, develop, and use the probiotic that
was the subject of the 615 Patent. The Court first addresses the claims that relate to the
ownership and alleged misappropriation of the Know-How, consisting of the declaratory
judgment, misappropriation of trade secrets, unjust enrichment, conversion, and breach of
contract claims in VSL Counts I, III, IX, X, XI, XVII against De Simone; VSL Counts XIX and
XX against ExeGi; and Sigma-Tau Count III against De Simone and ExeGi.
A.
Contract Interpretation
In resolving the First Motion for a Preliminary Injunction, the Court concluded that VSL
and Sigma-Tau (collectively, "the VSL Parties") were unlikely to succeed on the merits of their
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respective claims that they own and have an exclusive license to use the Know-How and, by
extension, their claims that the De Simone Parties had misappropriated that trade secret. De
Simone, 133 F. Supp. 3d at 794. In their Motions to Dismiss, the De Simone Parties attempt to
parlay that preliminary victory into a dismissal of the VSL Parties' trade secrets claims, arguing
that the relevant agreements between De Simone and VSL, attached to VSL's Counterclaim,
plainly do not convey the Know-How to VSL.
The De Simone Parties' arguments for dismissal based on the substance of the relevant
agreements fail. In making its preliminary determination that the VSL Parties were unlikely to
succeed on their claims to own and have an exclusive license to use the Know-How, this Court
concluded that the 2000 Mendes Assignment, the document that VSL cites as proof that De
Simone transferred his rights to the Know-How to VSL, is ambiguous in that it is susceptible to
more than one interpretation. In interpreting an ambiguous agreement, the Court considers
extrinsic evidence on the parties' intent. See World-Wide Rights Ltd v. Combe, Inc., 955 F.2d
242, 245 (4th Cir. 1992) ("Only an unambiguous writing justifies summary judgment without
resort to extrinsic evidence."). Accordingly, for purposes of the First Motion for a Preliminary
Injunction, the Court considered other agreements between the parties in assessing meaning of
the 2000 Mendes Assignment. Although VSL attaches to its Counterclaim many of the same
agreements considered at the preliminary injunction stage, the Court has not previously
concluded, and does not now conclude, that those materials constitute the only relevant extrinsic
evidence on the question whether the 2000 Mendes Assignment effected the transfer of rights in
the Know-How to VSL. The Court thus cannot dismiss, as a matter of law, VSL's claims that
rely upon its interpretation of the 2000 Mendes Assignment, including the misappropriation of
trade secret claims, without inappropriately short-circuiting discovery on the question of the
8
See id; Van Wagner Adver. Corp. v. S & M
parties' intent in entering into that agreement.
Enter., 492 N.E.2d 756, 758-59 (N.Y. 1986) (noting that "(w]hether or not a contract provision is
ambiguous is a question of law to be resolved by a court" but concluding that the trial court's
resolution of that ambiguity by reference to extrinsic evidence was a finding of fact). 1
B.
Statute of Limitations
The De Simone Parties alternatively argue that VSL's claims that it owned the KnowHow and that De Simone unlawfully misappropriated that trade secret are barred by the statute of
limitations.
A statute of limitations argument is an affirmative defense that may be raised
through a Rule 12(b)( 6) motion only if "the time bar is apparent on the face of the complaint."
Dean v. Pilgrim's Pride Corp., 395 F.3d 471, 474 (4th Cir. 2005).
De Simone asserts that the
2001 Patent License Agreement, the 2006 Confidential Disclosure Agreement, and the January
2010 Know-How Agreement each contained language that put VSL on notice of De Simone's
claims of ownership of the Know-How, such that, at the latest, VSL's claims accrued in January
2010. This argument fails.
The core theory of VSL' s declaratory judgment and trade secret claims is that De Simone
transferred the Know-How to VSL through the 2000 Mendes Assignment but later put in place
secret side agreements, including the 2006 Confidential Disclosure Agreement and the January
2010 Know-How Agreement, aimed at undoing that transfer, a scheme of self-dealing that VSL
asserts it learned of only years later, in 2014. While De Simone may reject that premise, the
Court, on a Motion to Dismiss, may not. Albright, 510 U.S. at 268. When the Court credits, as it
must at this stage, VSL' s chronology of events and its assertions about when and how it
I
The 2000 Mendes Assignment contains a provision stating that it is governed by New York
law.
9
discovered that there was a dispute with De Simone about the alleged transfer of ownership in
the Know-How, those assertions prevent dismissal on statute of limitations grounds.
Code Ann., Cts. & Jud. Proc.
9 5-203
See Md.
("If the knowledge of a cause of action is kept from a party
by the fraud of an adverse party, the cause of action shall be deemed to accrue at the time when
the party discovered, or by the exercise of ordinary diligence should have discovered the
fraud.");
Poffenberger v. Risser, 431 A,2d 677, 680 (Md. 1981) (holding that, in Maryland, a
claim accrues when a litigant "in fact knew or reasonably should have known of the wrong").
Nor can the Court accept De Simone's
argument that because some of the side
agreements were reviewed by Paolo Cavazza, one of VSL' s ultimate owners through various
VSL holding companies, or signed on behalf of a VSL holding company by Maurizio Terenzi,
who at one point served on VSL's Board of Directors, notice of De Simone's claim to ownership
of the Know-How must be imputed to VSL as of the dates of those agreements.
This argument
would require the Court either to consult evidence not integral to VSL's Counterclaim, such as
minutes from VSL board meetings or documents from foreign litigation, or to make its way
through the Cavazza corporate labyrinth to determine in what capacity Cavazza and Terenzi saw
these documents and whether their knowledge as officers of VSL holding companies could be
imputed to VSL, a convoluted undertaking that cannot be accomplished based only on the face of
VSL's Counterclaim.
Dean, 395 F.3d at 474.
The Court is also unconvinced by De Simone's remaining arguments that VSL's claims
accrued either in 2001 or in 2008, based on, respectively, the Patent License Agreement or the
reissuance of the 615 Patent, which listed De Simone as that patent's sole owner. As no one in
this litigation disputes, and as the Court noted in its Memorandum
Opinion on the First
Preliminary Injunction Motion, the 615 Patent is not commensurate with the Know-How.
10
De
Simone himself avers in his Complaint that "the 2001 Patent License Agreement does not
mention the 'Know How' and does not purport to license any such information to VSL." Compl.
~ 54, ECF NO.1.
Instead, the Know-How has appeared in this case, from the outset, as a trade
secret separate and distinct from the 615 Patent. As a result, the 2001 Patent License Agreement
and the 2008 patent reissuance cannot be deemed, as a matter of law, to have placed VSL on
notice of De Simone's claims to ownership of the Know-How.
Accordingly, although additional factual development may provide a basis to establish a
statute of limitations defense to certain of VSL' s claims, the allegations in the Counterclaim do
not support dismissal on this ground.
C.
The ExeGi Misappropriation Claim
Finally, ExeGi's individual argument that VSL has failed to plead a claim against ExeGi
for misappropriation
of trade secrets also fails. As relevant here, under the Maryland Uniform
Trade Secrets Act ("MUTSA"), Md. Code Ann., Com. Law. ~~ 11-1201-09
(West 2013), a
misappropriation of a trade secret requires either (1) "[a ]cquisition" of a trade secret by someone
who "knows or has reason to know" that it was acquired by "improper
means"; or (2)
"[d]isclosure or use of a trade secret of another without express or implied consent" by someone
who knew or had reason to know that his or her knowledge of the trade secret was "derived from
or through a person who had utilized improper means to acquire it" or was "[ d]erived from or
through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its
use."
Id. ~ 11-1201(c).
On the first prong, by referencing the February 27, 2015 letter from ExeGi Chief
Executive Officer ("CEO") Marc Tewey (the "Tewey Letter") stating that De Simone would be
"granting ExeGi access to his know-how and supply" and would produce a competing probiotic
11
of the same formula, VSL has alleged facts that support an inference that ExeGi acquired the
Know-How from De Simone.
VSL 2d Am. Countercl. ~196, ECF No. 153. By alleging that it
responded to the Tewey Letter the same day with a letter (the "VSL Letter") asserting VSL's
claim of ownership in the Know-How and stating that De Simone had misappropriated it, VSL
has properly alleged that ExeGi "knew or had reason to know" that the trade secret was obtained
by improper means.
These same facts support a misappropriation claim under the second prong. The Tewey
Letter, along with the separate allegations that ExeGi was marketing Visbiome, supports the
inference that ExeGi engaged in "use" of the Know-How.
The VSL Letter supports the
inference that VSL did not consent to the use of the Know-How, and that ExeGi knew or had
reason to know that its knowledge derived from a person (De Simone) who either used improper
means to acquire it or owed a duty to VSL to maintain its secrecy.
To the extent that ExeGi claims that VSL's misappropriation
claim necessarily fails
because VSL did not actually own the Know-How, that issue, as discussed above, is not properly
resolved on a motion to dismiss. Although ExeGi also claims that neither VSL nor ExeGi have
ever possessed the Know-How, that is a factual issue that is properly the subject of discovery.
Accordingly, the De Simone Parties' Motions to Dismiss Counts I, III, IX, X, XI, XVII,
XIX, and XX of the VSL Counterclaim and Count III of the Sigma-Tau Counterclaim
are
denied.
V.
Corporate Duty Claims
A.
Breach of Fiduciary Duty and Related Claims
The Court next considers the VSL claims against De Simone relating to his fiduciary duty
to VSL as its CEO, consisting of VSL's breach of fiduciary duty claim (Count IV), breach of
12
contract claim relating to the 2001 Patent License Agreement (Count XV), and unjust enrichment
claim relating to the Patent License Agreement (Count XVI). The Court has already found, on
the First Motion for a Preliminary Injunction, that VSL is likely to succeed on its breach of
fiduciary duty claim arising from De Simone's
execution of agreements
with VSL "that
purported to divest VSL of intellectual property rights that had already been fully assigned to
VSL," VSL 2d Am. Countercl. ~ 269(b), so it is necessarily unpersuaded by De Simone's cUrrent
assertion that VSL has failed adequately to plead that cause of action. De Simone, 133 F. Supp.
3d at 795-96. The statute of limitations does not bar this aspect of the breach of fiduciary duty
claim, because the events at issue either occurred within the three-year statute of limitations or
occurred after, as VSL alleges, De Simone had begun his campaign of fraud and self-dealing.
See Md. Code Ann., Cts. & Jud. Proc. ~ 5-203 ("If the knowledge of a cause of action is kept
from a party by the fraud of an adverse party, the cause of action shall be deemed to accrue at the
time when the party discovered, or by the exercise of ordinary diligence should have discovered
the fraud. ").
VSL, however, also asserts a second theory of breach of fiduciary duty, that De Simone
failed "to grant VSL the option to acquire the entire ownership
exploitation rights of the '615 Patent."
underlies Counts XV and XVI.
rights or the exclusive
VSL 2d Am. Countercl. ~ 269(a).
This same claim
As De Simone correctly argues, any claim based on De
Simone's alleged failure to offer VSL his rights in the 615 Patent is barred by the three-year
statute of limitations.
According to VSL, De Simone was required under the terms of the 2001 Patent License
Agreement to offer any rights he obtained in the 615 Patent to VSL, but when, in 2005, he settled
his lawsuit related to the 615 Patent and obtained full rights to it, he failed to make the requisite
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offer. The face of the Counterclaim establishes that VSL's claims stemming from De Simone's
alleged failure to offer the 615 Patent rights to VSL accrued in 2005, so they had to be brought
by 2008. In this instance, VSL is not shielded from this deadline by its other allegations about
De Simone's conduct.
Although VSL claims that De Simone's failure to offer his rights in the
615 Patent was part of the alleged self-dealing, it acknowledges that VSL paid for De Simone's
legal representation in the lawsuit leading to the settlement that provided him with those rights.
See id ~ 72. Significantly, VSL was also a counterclaim defendant in that case. See Simone v.
Estate of Renata Maria Anna Cavaliere Vesely, No. 1:02-cv-01650-RJL (D.D.C. 2002). Under
these circumstances, VSL cannot plausibly claim that it was not on notice of the results of the
litigation.
Moreover, because "issuance of a patent and recordation
in the Patent Office
constitute notice to the world of its existence," Wine Ry. Appliance Co. v. Enter. Ry. Equip. Co.,
297 U.S. 387, 393 (1936), VSL was on notice as of2008, when the 615 Patent was reissued, that
De Simone's obligation to offer VSL his rights in that patent had been triggered.
See 35 U.S.C.
~ 252 ("[E]very reissued patent shall have the same effect and operation in law ... as if the same
had been originally granted in such amended form[.]").
Thus, VSL cannot plausibly assert that,
by 2008 at the latest, it either did not know or should not reasonably have known that De Simone
failed to make the required offer to transfer to VSL his full interest in the 615 Patent.
Poffenberger, 431 A,2d at 680 (holding that, in Maryland, a claim accrues when a litigant "in
fact knew or reasonably should have known of the wrong"). VSL's claims related to the alleged
breach of the 2001 Patent License Agreement are thus time-barred.2
2
Pursuant to Fed. R. Evid. 201(b)(2), the Court takes judicial notice of the docket in Simone v.
Estate of Renata Maria Anna Cavaliere Vesely, No. 1:02-cv-01650-RJL (D.D.C. 2002), which
was referenced in the VSL Counterclaim, and of the reissuance of the 615 Patent in 2008.
14
Accordingly, the Court grants the Motion to Dismiss as to the patent license aspect of
Count IV (breach of fiduciary duty), and as to Count XV (breach of contract) and Count XVI
(unjust enrichment) in their entirety.
Count XVI is also dismissed based on the alternative
ground that an equitable action for unjust enrichment will not lie when the alleged harm is a
breach of a contract. So. Biscuit Co., Inc. v. Lloyd, 6 S.E.2d 601, 606 (Va. 1940) ("It has been
well settled by repeated decisions of this court than an express contract defining the rights of the
parties necessarily precludes the existence of an implied contract of a different nature containing
the same subject matter."); see also County Com'rs of Caroline Cty. v. J. Roland Dashiell &
Sons, Inc., 747 A,2d 600, 610 (Md. 2000) ("We hold that, generally, quasi-contract claims such
as quantum meruit and unjust enrichment cannot be asserted when an express contract defining
the rights and remedies of the parties exists.").
B.
Fraud
VSL has adequately pleaded the related fraud claim against De Simone alleged in Count
VI. Under Virginia law, the elements of fraud are "(1) a false representation, (2) of a material
fact, (3) mad"'~nallY
and knowingly, (4) with intent to mislead, (5) reliance by the party
misled, and (6) resulting damage."
Thompson v. Bacon, 425 S.E.2d 512, 514 (Va. 1993); see
also Nails v. S & R, Inc., 639 A,2d 660,668 (Md. 1994) (noting that, in Maryland, fraud consists
of a knowing false representation, made for the purpose of defrauding the plaintiff, upon which
the plaintiff was entitled to and did rely, leading the plaintiff to suffer a compensable injury).
The "concealment of a material fact" satisfies the element of a false representation.
Van Deusen
v. Snead, 441 S.E. 2d 207,209 (Va. 1994); see also Parish v. Md & Va. Milk Prod Ass'n, 242
A.2d 512, 539 (Md. 1968) ("It is well established that actionable fraud may result from the
concealment of material facts as well as from the false statement of material facts.").
15
Here, VSL alleges all of these elements.
Specifically, VSL alleges that De Simone, as
CEO ofVSL, had a duty to disclose to VSL his intention to compete with it in supplying VSL#3,
but deliberately failed to do so. VSL further asserts that it relied on and was misled and harmed
by De Simone's omissions about his lack of fidelity to VSL, leaving it unprepared when De
Simone invoked the contractual provisions he had put in place to enable him to cut off VSL' s
supply of its only profitable product at the very moment when De Simone was poised to launch
his competing product, Visbiome.
See Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614,
629 (4th Cir. 1999) (stating that under Virginia law, "[a]lthough silence does not constitute fraud
in the absence of a duty to disclose, concealment of a material fact by one who knows that the
other party is acting upon the assumption that the fact does not exist constitutes actionable
fraud") (internal citations and quotation marks omitted).
De Simone counters that he had no duty under Maryland law to disclose his intent to
compete with VSL. First, Maryland law does not govern this claim. Second, the Maryland case
that De Simone cites in fact sets forth the general principle that "while an employee is under an
obligation to be candid with his employer in preparing to establish a competing enterprise, he is
not bound to reveal the precise nature of his plans to the employer unless he has acted inimically
to the employer's interest beyond the mere failure to disclose" such as through "misappropriation
of trade secrets."
Md Metals, Inc. v. Metzner, 382 A.2d 564, 569 (Md. 1978). Here, VSL has
alleged that De Simone not only sought to compete with VSL, but also employed various secret
contractual agreements to misappropriate the Know-How and to cripple VSL's supply chain for
VSL#3. Where VSL' s allegations, taken as true for purposes of this motion, go beyond a mere
intention to compete honestly, and instead paint a picture of a covert plan to sabotage VSL that
was years in the making, De Simone's fiduciary duty as CEO of VSL may well have required
16
him to disclose his intentions to VSL. See Hitachi Credit Am. Corp., 166 F.3d at 629. Where
VSL has alleged that De Simone failed to do so, De Simone's motion to dismiss as to VSL's
fraud claim, Count VI, is denied.
C.
Civil Conspiracy
In Count V against De Simone, VSL alleges civil conspiracy arising from De Simone's
alleged collusion with Beth Park, Chief Operating Officer and a Director of VSL, to strip VSL of
its ownership interest in the Know-How and to supplant it in the marketplace with a new, De
Simone-controlled
entity.
To plead a claim of civil conspiracy, a party must allege facts that,
taken as true, establish "a combination of two or more persons to accomplish an unlawful
purpose or to accomplish a lawful purpose by unlawful means, resulting in damage to the
plaintiff."
Glass v. Glass, 321 S.E.2d 69, 74 (Va. 1984). VSL alleges that De Simone and Park
conspired to position De Simone unlawfully to misappropriate the Know-How which he had
originally conveyed to VSL, and to take over VSL' s entire supply chain, leaving VSL unable to
readily obtain supply of its only profitable product. Among the acts that VSL alleges were taken
in furtherance of this conspiracy is De Simone's signing, and Park's ratification on behalf of
VSL, of the January 2010 Know-How Agreement, which provided that De Simone alone owned
the rights to the Know-How, that VSL had only a license to use that trade secret, and that De
Simone could terminate VSL' s license to use the Know-How if there were a change in control of
VSL, provisions that De Simone later used to cut off VSL's supply chain. Although competing
with VSL may be a lawful purpose, the Counterclaim alleges that De Simone engineered this
competition through, at a minimum, the unlawful means of the misappropriation of a trade secret
and the breach of his fiduciary duty.
De Simone's
conspiracy claim in Count V is thus denied.
17
motion to dismiss as to VSL's civil
D.
Punitive Damages
De Simone asks that, if the Court allows Counts V and VI to proceed, it strike VSL' s
request for punitive damages because VSL fails to plead with sufficient detail that De Simone
acted with malice.
Although the awarding of punitive damages requires a showing of actual
malice, VSL has expressly made that allegation.
See VSL 2d Am. Countercl. ~ 277; Jordan v.
Suave, 247 S.E.2d 739, 741 (Va. 1978); see also Scott v. Jenkins, 690 A,2d 1000, 1003-04 (Md.
1997) (stating that "in order to recover punitive damages in any tort action in the State of
Maryland, facts sufficient to show actual malice must be pleaded and proven by clear and
convincing
evidence").
Notably, "(m] alice, intent, knowledge,
person's mind may be alleged generally."
and other conditions
of a
Fed. R. Civ. P. 9(b). Furthermore, VSL's exhaustive
Counterclaim contains ample, detailed allegations that, if true, would support an inference that
De Simone acted with malice in deliberately scheming to usurp VSL's business.
The request to
strike VSL's demand for punitive damages in Counts V and VI is denied.
E.
Business Torts
In Count VII against De Simone, VSL pleads tortious interference with a business
relationship, based on the allegedly secret 2008 Danisco Supply Agreement, the January and
March 2010 Know-How Agreements, and the 2014 Danisco Supply Agreement.
Through these
agreements, VSL asserts, De Simone interfered with VSL's relationship with, and supply from,
Danisco.
However, VSL's original and only contract with Danisco-the
Disclosure Agreement, included as an exhibit to VSL' s Counterclaim-is
2006 Confidential
signed by De Simone
both on behalf of VSL and in his individual capacity. "A person cannot intentionally interfere
with his own contract."
Fox v. Deese, 362 S.B. 2d 699, 708 (Va. 1987); see also Bagwell v.
Peninsula Reg 'I Med etr., 665 A,2d 297,313 (Md. Ct. Spec. App. 1995) ("As a matter oflaw, a
18
party to a contract cannot tortiously 'interfere'
with his or her own contract; the party can, at
most, breach it."). Because VSL bases its tortious interference claim on an agreement to which
De Simone is a party, the claim fails. De Simone's Motion to Dismiss is granted as to Count
VII, which is dismissed with prejudice.
In Count VIII against De Simone, VSL pleads a claim for usurpation of corporate
opportunity arising from his termination of the January 2010 Know-How Agreement while he
was CEO of VSL in order to divert, pursuant to the 2014 Danisco Supply Agreement, Danisco' s
supply of VSL#3 to him in his personal capacity.
However, when the party being sued is a
fiduciary of the injured corporation, "usurpation of corporate business opportunity is generally
considered a breach of. fiduciary duty rather than conduct constituting a distinct cause of action."
Feddeman & Co., C.P.A. v. Langan Assoc., P.C., 530 S.E.2d 668,675 n.1 (Va. 2000). Notably,
Delaware courts have likewise treated the usurpation of corporate opportunity as a form of
breach of fiduciary duty. See Guth v. Loft, Inc., 5 A,2d 503, 510-11 (Del. 1939) (stating that
self-dealing in breach of one's fiduciary duty includes usurping a corporate opportunity for
oneself); see also Pittman v. Am. Metal Forming Corp., 649 A,2d 356, 359 (Md. 1994) (citing
Guth v. Loft and stating that the corporate opportunity doctrine "has developed around the duty
owed by directors and officers" to the corporation)
omitted)).
(internal citation and quotation marks
Because VSL has pleaded a claim for breach of fiduciary duty that encompasses this
claim, and Virginia courts have not recognized usurpation of a corporate opportunity as a distinct
claim when a fiduciary duty exists, the Court dismisses Count VIII with prejudice.
In Count IV of its Complaint, Sigma-Tau pleads tortious interference with economic
relations against De Simone.
Sigma- Tau claims that De Simone interfered with Sigma- Tau's
economic relationship and contract with VSL by establishing ExeGi and arranging to divert
19
Danisco's supply of VSL#3 to ExeGi.
Specifically, Sigma-Tau alleges that De Simone
tortiously interfered with the economic relationship between Sigma-Tau and VSL, codified
through the 2003 and 2010 VSL-Sigma-Tau License Agreements, and the economic relationship
between Sigma-Tau and Danisco, codified through the 2006 Confidential Disclosure Agreement.
In Maryland, a claim of tortious interference with economic relations can advance only if the
defendant is not a party to the business relationship at issue. See Kaser v. Fin. Mkt. Protection
Mktg., Inc., 831 A.2d 49, 54 (Md. 2003) ("[T]his Court has consistently taken the position that
the tort of wrongful interference with economic relations will not lie where the defendant is a
party to the economic relationship with which the defendant has allegedly interfered.").
Here,
De Simone is not a party to the economic relationship between VSL and Sigma-Tau. Though he
signed the 2003 VSL-Sigma- Tau Licensing Agreement, he did so in his capacity as a
representative of VSL, not in his individual capacity. This aspect of Sigma-Tau's claim is
therefore viable. Sigma-Tau's claim of interference in the relationship between Sigma-Tau and
Danisco, however, cannot proceed because that relationship stems from the 2006 Confidential
Disclosure Agreement, which De Simone signed both as a representative of VSL and in his
individual capacity.
Thus, De Simone's Motion to Dismiss Count IV of Sigma-Tau's
Counterclaim is granted as to the Sigma-Tau-Danisco relationship, but denied as to the SigmaTau- VSL relationship.
In Count VIII, Sigma-Tau pleads tortious interference with prospective economic
advantage against ExeGi, based on ExeGi's alleged false statements on its website and directly
to Sigma-Tau's customers in which ExeGi has claimed or implied that VSL and Sigma-Tau
would no longer be supplying VSL#3. When a business relationship is not codified in a
contract-and
no contractual relationship between Sigma-Tau and its customers is alleged
20
here-a
defendant has a "broader right to interfere" with it, on the theory that such interference
is, from a different perspective, simply competition in the marketplace. Macklin v. Robert Logan
Assoc., 639 A.2d 112, 120 (Md. 1994). Thus where a defendant's purpose in interfering with a
non-contractual business relationship is "at least in part to advance his interest in competing"
with one of the parties, he is not liable in tort for that interference unless the defendant acts with
"tortious intent" and by means which are themselves "wrongful." Natural Design, Inc. v. Rouse
Co., 485 A.2d 663,676 (Md. 1994) (quoting Restatement (Second) of Torts, ~ 768).
In this context, wrongful conduct is "incapable of precise definition," but examples
include the use of violence, intimidation, injurious falsehood or fraud, or violations of criminal
law. Id. For the conduct to be wrongful for purposes of the tort, it must be "conduct that is
independently wrongful and unlawful, quite apart from its effect on the plaintiffs business
relationships." Alexander & Alexander Inc. v. B. Dixon Evander & Assoc., 650 A.2d 260, 271
(Md. 1994).
Here, Sigma-Tau alleges that ExeGi has deliberately used false statements and
engaged in other forms of unfair competition in order to poach Sigma-Tau customers. Accepting
those allegations as true, Sigma-Tau has adequately alleged that ExeGi has engaged in
independently wrongful conduct that interferes with Sigma-Tau's prospective economic
advantage. ExeGi's Motion to Dismiss as to Count VIII of Sigma-Tau's Counterclaim is denied.
F.
Conversion
In Count XVIII against De Simone, VSL asserts a claim of conversion relating to De
Simone's removal of VSL property upon his resignation as CEO. Conversion is "an intentional
exercise of dominion or control over chattel which so seriously interferes with the right of
another to control it that the actor may justly be required to pay the other the full value of the
chattel." United States v. Arora, 860 F. Supp. 1091, 1097 (D. Md. 1994), aff'd 56 F.3d 62 (4th
21
Cir. 1995) (quoting Restatement (Second) of Torts,
9
222A(l».
An action for conversion
therefore generally "applies only to tangible property," extending to intangible property only
when that intangible property is "merged with a document, such as a valid stock certificate,
promissory note, or bond." United Leasing Corp. v. Thrift Ins. Corp., 440 S.E. 2d 902,906 (Va.
1994).
There is no cause of action for conversion for "interference with undocumented
intangible property rights." Id.; see also Allied Inv. Corp. v. Jasen, 731 A,2d 957, 965 (Md.
1999) (holding that "the tort of conversion generally may extend to the type of intangible
property rights that are merged or incorporated into a transferable document" and refusing to
extend the tort any further).
Here, VSL asserts that De Simone removed VSL property including documents, data,
computers, laptops, servers, drawings, manuals, letters, notes, reports, and recordings, all of
which are tangible property that can be the subject of a conversion claim. The conversion claim
also references account information, log-in information, passwords, and electronic mail,
including email messages sent to and from De Simone's @vslpharma.com email address and
information related to the @vslpharma.com domain. De Simone argues that these latter items
are intangible property that will not support a conversion claim. However, De Simone cites no
authority for the proposition that emails, which can be reduced to paper, and information about
internet domains, which can be stored on a hard drive, are necessarily "intangible" in this
context. Where the conversion claim is plainly viable, and the only issue is whether certain
specific items are subject to that claim, the Court declines to parse the claim that finely at this
time and denies the Motion to Dismiss as to Count XVIII.
22
VI.
Lanham Act
In its Counterclaim, VSL assert violations of the Lanham Act, 15 U.S.C. ~~ 1051-1141n
(2012), for trademark infringement, unfair competition, and false advertising against De Simone
in Counts XII, XIII, and XXVIII, respectively, and against ExeGi in Counts XXI, XXII, and
XXVIII, respectively.
that the De Simone
This Court has already found that VSL is likely to succeed on its claims
Parties
have engaged
infringement and false advertising.
in unfair
competition,
including
trademark
See De Simone, 133 F. Supp. 3d at 796-99; De Simone, No.
TDC-15-1356, 2016 WL 3466033 at *18-23.
Having twice explained at length the reasons that
VSL is likely to succeed on the merits of these claims, the Court necessarily is unpersuaded by
the De Simone Parties' arguments here that the VSL Parties have failed to state a claim under the
Lanham Act.
To the extent that the De Simone Parties specifically argue that VSL has not stated a false
advertising claim relating to the email from Saara Khadir on January 28,2016, including because
it was not a commercial
advertisement,
they have acknowledged
that "[ d]etermining
if a
particular statement qualifies as a commercial advertisement is a fact-specific inquiry."
De
Simone Mot. Dismiss VSL Countercl. at 47. Given that on a motion to dismiss the Court must
draw all reasonable inferences from the factual allegations in favor of the nonmoving party, it
cannot conclude that the Khadir email was disseminated so narrowly that it did not amount to a
commercial advertisement, or that it contained only truthful statements.
The Court therefore
denies the Motion as to VSL's Lanham Act claims (Counts XII, XIII, XXI, XXII, and XXVIII).
VII.
Injunctive Relief
Counts XXIII, XXIV, XXV, XXVI, and XXVII of VSL's
Counterclaim
seek a
preliminary and permanent injunction based on various other causes of action alleged.
23
The
requests for injunctive relief are then repeated in VSL's prayer for relief. The De Simone Parties
seek to have these counts dismissed, arguing that an injunction is a remedy, not a cause of action.
They are correct. "[A] request for injunctive relief does not constitute an independent cause of
action; rather, the injunction is merely the remedy sought for the legal Wrongs alleged in ... the
substantive counts."
Fare Deals, Ltd. v. World Choice Travel. com, Inc., 180 F. Supp. 2d 678,
682 n.l (D. Md. 2001); see Dwoskin v. Bank of Am., N.A., 850 F. Supp. 2d 557,573-74
(D. Md.
2001).
Although VSL tries to save these claims by arguing that the court in Dwoskin did not
dismiss the request for injunctive relief, in that case the request was not otherwise pleaded in the
Complaint.
850 F. Supp. 2d at 573-74.
Where, as here, injunctive relief is included in the
request for relief, there is no reason to allow these duplicative requests to proceed in the
improper guise of independent causes of action.
The Court therefore dismisses with prejudice
VSL Counts XXIII, XXIV, XXV, XXVI, and XXVII.
This dismissal has no effect on VSL's
prayer for injunctive relief as a remedy.
VIII. Unripe Claims
In Count II, VSL seeks a declaratory judgment stating that any rights held by De Simone
in any invention he has made in the field of pharmaceutical nutritional compositions belongs to
VSL and asks that this Court also "requir[ e] De Simone to provide a list of all such inventions."
VSL 2d Am. Countercl. ~ 261. In order to proceed, a claim under the Declaratory Judgment Act,
28 U.S.C. ~ 2201, must satisfy the constitutional requirement of an active case or controversy.
Organic Seed Growers & Trade Ass 'n v. Monsanto, Co., 718 F.3d 1350, 1354-55 (Fed. Cir.
2013).
Although a declaratory judgment
action may be filed before an actual injury has
occurred, parties seeking declaratory relief "must show that they are at 'substantial risk' of ...
24
hann, and that costly precautions are a reasonable response."
Amnesty Int'l., 133. S Ct. 1138, 1150 n.5 (2013)).
Id at 1360 (quoting Clapper v.
Count II fails to meet this standard for
ripeness. Apart from its general assertion that, "[u]pon information and belief," De Simone has
failed to transfer various inventions to VSL, VSL identifies no specific invention that it believes
De Simone has withheld.
VSL 2d Am. Countercl. ~ 260. Rather, VSL asks for a list of De
Simone's discoveries, a request that suggests that this cause of action is a search for information,
not an assertion of a palpable threat of harm. Further, VSL fails to provide any plausible basis to
conclude that De Simone's purported withholding of inventions poses the substantial risk of
harm required for this Court to hear this declaratory judgment claim.
The Court therefore
concludes that Count II is not ripe for adjudication and grants the Motion to Dismiss as to that
count.
In Count XIV, VSL seeks a declaratory judgment cancelling and declaring invalid two
trademark applications, one for the term "VSL3TOTAL" and one for the phrase "VSL3 BY DE
SIMONE."
The Court also dismisses this claim on ripeness grounds.
trademark is permitted in cases "involving a registered mark." 15 U.S.C.
added).
Cancellation
9
of a
1119 (emphasis
These applications have not yet been approved by the United States Patent and
Trademark Office.
Because the marks have not yet been registered, there is nothing for this
Court to cancel. Dunn Computer Corp. v. Loudcloud, Inc., 133 F. Supp. 2d 823,831 (E.D.V.A.
2001) (holding that a claim for the cancellation of a trademark was not ripe "[b]ecause this case
does not involve any registered marks," and that the claim could not be brought until "the
registration of one of [the] proposed marks by the PTO"); see also 3 McCarthy on Trademarks
and Unfair Competition
9 20:40
federally registered mark").
(4th ed. 2016) (noting that courts have the power to cancel "a
De Simone's Motion to Dismiss Count XIV is granted.
25
IX.
ExeGi as a Third-Party Defendant
ExeGi also seeks dismissal of all of VSL's claims against it because VSL improperly
joined ExeGi as a third-party defendant.
ExeGi is correct that third-party defendant actions are
limited to those in which a defendant believes another party "is or may be liable to it for all or
part of the claim against it." Fed. R. Civ. P. 14(a)(1). However, to dismiss VSL's claims against
ExeGi on this basis would elevate form over substance.
Such a dismissal would not bar VSL
from repleading to join ExeGi under Rule 20 as a counterclaim defendant, nor does ExeGi
contend otherwise.
Fed. R. Civ. P. 20(a)(2). Under the Federal Rules of Civil Procedure, "the
impulse is toward entertaining the broadest possible scope of action consistent with fairness to
the parties; joinder of claims, parties and remedies is strongly encouraged."
United Mine
Workers of Am. v. Gibbs, 383 U.S. 715, 724 (1966). Notably, the parties have already effectively
addressed this issue by altering the caption on their filings to list the original "Third-Party
Defendants,"
including ExeGi, as "Additional Counterclaim Defendants."
In the interest of
judicial economy, the Court will direct the Clerk to amend the caption in this case to list the
Third-Party Defendants as Additional Counterclaim Defendants.
CONCLUSION
For the reasons set forth above, De Simone's and ExeGi's Motions to Dismiss are
GRANTED IN PART and DENIED IN PART.
XIV ofVSL's
The Motions are granted as to Counts II and
Counterclaim, which are dismissed as unripe. The Motions are also granted as to
Counts VII, VIII, XV, XVI, XXIII, XXIV, XXV, XXVI, and XXVII of VSL's Counterclaim,
which are dismissed
Counterclaim
with prejudice.
The Motion is granted as to Count IV of VSL's
only to the extent that the allegations relating to the 2001 Patent License
Agreement are dismissed, but denied as to all other aspects of Count IV. The Motion is granted
26
as to Count IV of Sigma- Tau's Counterclaim to the extent that claim relates to the Sigma- TauDanisco relationship, but denied as to the Sigma- Tau- VSL relationship.
The Motions are denied
as to all other counts. A separate Order shall issue.
Date: January 5, 2017
-
THEODORE D. CHU
United States District
27
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