P&L DEVELOPMENT LLC v. BIONPHARMA, INC et al
Filing
146
MEMORANDUM OPINION AND ORDER signed by JUDGE N. C. TILLEY, JR. on 2/14/2019. For the reasons stated in this Memorandum Opinion, Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Claim for U nfair and Deceptive Trade Practices (Seventh Cause of Action) (Doc. # 136 ) is GRANTED and Plaintiff's Seventh Cause of Action is DISMISSED. FURTHER that Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Claim for Unfair and Deceptive Trade Practices (Sixth Cause of Action) (Doc. # 123 ) which sought to dismiss a claim asserted in a complaint that has since been amended is DENIED AS MOOT. (Daniel, J)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
P&L DEVELOPMENT, LLC,
Plaintiff,
v.
BIONPHARMA, INC. and
BIONPHARMA HEALTHCARE LLC,
Defendants.
)
)
)
)
)
)
)
)
1:17CV1154
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendants’ Motion for Judgment on the
Pleadings as to Plaintiff’s Claim for Unfair and Deceptive Trade Practices (Seventh
Cause of Action) [Doc. #136]. For the reasons explained below, Defendants’
motion is granted. Defendants’ Motion for Judgment on the Pleadings as to
Plaintiff’s Claim for Unfair and Deceptive Trade Practices (Sixth Cause of Action)
[Doc. #128], filed as to the initial complaint which has now been amended, is
denied as moot.
I.
This action began in December 2017 when Plaintiff P&L Development LLC
(“PLD”) sued Defendants Bionpharma Inc. and Bionpharma Healthcare LLC
(collectively “Bion”) alleging claims for breach of contract, breach of the covenant
of good faith and fair dealing, and unfair and deceptive trade practices. (See
Verified Compl. [Doc. #7].) In January 2018, PLD moved for a temporary
restraining order and preliminary injunction, and the temporary restraining order
was granted in limited part. Prior to the scheduled hearing on the preliminary
injunction and other matters, the parties reached an agreement on the preliminary
injunction. During the hearing, their motion for a stay until June 1, 2018 was
granted.
After the period of stay ended, Bion filed its Answer and Counterclaim and
moved for judgment on the pleadings as to PLD’s unfair and deceptive trade
practices claim. Afterwards, PLD amended its complaint by modifying the factual
and legal allegations and adding a claim of fraud. (Am. Compl. [Doc. #126].) Bion
answered and once again moved for judgment on the pleadings as to PLD’s unfair
and deceptive trade practices claim.
II.
PLD, a Delaware limited liability company with its principal place of business
in New York, and Bion, Delaware companies1 with their principal places of business
in New Jersey, were successor parties to four agreements (“Agreements”) entered
into in 2003, 2004, 2011, and 2012 according to which Bion and its predecessors
would manufacture, imprint, and bulk package pharmaceuticals (“Products”) which
PLD and its predecessor would then market and sell as a private label or store
brand. (Am. Compl. ¶¶ 1, 3, 4; Answer ¶¶ 3, 4; Ex. C to Am. Compl., 2003
Ibuprofen Agreement; Ex. D to Am. Compl., 2012 Naproxen Agreement; Ex. E to
Am. Compl., 2011 Cetirizine Agreement; Ex. F to Am. Compl., 2004 Loperamide
Agreement.)
1
Bionpharma Inc. is a Delaware corporation, while Bionpharma Healthcare LLC is a
Delaware limited liability company. (Am. Compl. ¶¶ 3, 4; Answer ¶¶ 3, 4.)
2
Each of the Agreements had a defined Term that would automatically renew
at the end of the Term for one year unless a party gave the requisite written notice
of non-renewal. (Ibuprofen Supply Agreement § 8.1 & Amends.; Naproxen Supply
Agreement § 10.1; Cetirizine Supply Agreement § 10.1; Loperamide Supply
Agreement § 8.1.) In September 2017, Bion notified PLD of its intent not to
renew the Agreements “upon expiration of their current terms on March 31,
20182.” (Ex. B to Am. Compl., Letter from Bion to P&L Dev. of N.Y. Corp. (Sept.
11, 2017).) The Agreements obligated Bion “to provide Products to PLD at least
through March 31, 2018, and later under certain Supply Agreements if outstanding
firm orders were received prior to” that date. (Am. Compl. ¶ 42.) Despite this
obligation, and well before notifying PLD of its intent not to renew the
Agreements, Bion began reducing or rejecting PLD’s orders and instructing Patheon
Softgels, Inc. (“Patheon”), the manufacturer of the Products with whom Bion
contracted, to redirect its manufacturing from PLD to Bion.
The Agreements called for PLD to place its orders with Bion which
forwarded them to Patheon. (Id. ¶¶ 29, 30, 50, 74, 96, 113.) After Patheon
manufactured the Products at its High Point, North Carolina facility, it would ship
them directly to PLD. (Id. ¶¶ 50, 74, 96, 113.) However, in May 2017, Bion
2
The Initial Term of the Cetirizine Agreement and the Naproxen Agreement ended
on March 31, 2018. (Cetirizine Agreement § 10.1; Naproxen Agreement § 10.1.)
It is not apparent from the Ibuprofen Agreement, its amendments, or the
Loperamide Agreement that March 31, 2018 was their designated expiration date.
However, PLD does not take issue with Bion’s September 2017 letter.
3
began reducing or rejecting some of PLD’s purchase orders for Ibuprofen and
Naproxen, at times taking the position that it was entitled to do so and at other
times taking the position that there was a shortage of Active Pharmaceutical
Ingredient (“API”) for the Products. (Id. ¶¶ 52-54, 75-76, 78-79, 137.)
In emails to PLD in October 2017, Bion rejected two purchase orders for
Ibuprofen because “’there continue to remain issues with API for IBU, etc.’” and
then explained that there were “’shortages in raw material’” beyond Bion’s control,
including the lack of “’any commitments beyond Oct supply of API‘”, that could
“’impact [Bion’s] ability to fulfill an order’”. (Id. ¶¶ 221.a., 221.b.) In November,
after PLD complained of Bion’s purchase order rejections, Bion emailed PLD to say
once again that there was a shortage of API “’due to circumstances beyond
[Bion’s] reasonable control’” and that Bion could not fulfill one specific purchase
order “’based on the supply situation’”. (Id. ¶¶ 221.c., 221.d.) Later that month,
Bion’s general counsel, Lavesh Samtani, spoke with PLD’s general counsel, Charles
Cain, who was in North Carolina at the time, and explained that Bion had not been
able to supply PLD with the Products “because of an API shortage, which was out
of Bion’s control.” (Id. ¶ 221.e.) In an email two days later, Samtani repeated to
Cain, in North Carolina at the time, and others that “’due to lack of supply of
materials and for reasons out of [Bion’s] control”, Bion could not supply Products
to PLD. (Id. ¶ 221.f.)
Yet, according to Patheon’s representative, there was no API shortage that
impacted Patheon’s ability to manufacture all of the Products PLD had ordered, had
4
Bion submitted the orders to Patheon. (Id. ¶¶ 61, 81, 146, 223; id. ¶¶ 56, 80
(suggesting that to the extent there was any minor shortage of API for Patheon,
there was API from alternate sources).) When PLD representatives visited
Patheon’s manufacturing facility on December 1, 2017, they saw “ample
quantities of the necessary API to satisfy PLD’s orders”, “active manufacturing
lines running with both Ibuprofen softgels and Naproxen softgels”, and “large
quantities of Ibuprofen softgels and Naproxen softgels packaged and ready for
shipping with PLD’s address affixed to the pallets stored in Patheon’s warehouse.”
(Id. ¶ 141.) PLD notified Bion of its observations, and on December 4, 2017,
Samtani emailed Cain, who was in North Carolina, that “Bion was making
‘reasonable and good faith efforts to supply [PLD] with all products’”, denied
“’withholding any products from PLD’”, and stated that there was “’simply no
need for PLD to go to Patheon’ to check the status” of its orders. (Id. ¶ 221.h.)
PLD relied on these representations when it failed to contact “alternate suppliers”
because “an API shortage in the industry” made it “likely that other suppliers
would be experiencing the same problem and not be able to fill any orders that PLD
might place because the raw materials were not available.” (Id. ¶ 228.)
In September, Bion began reducing or rejecting PLD’s purchase orders for
Cetirizine and Loperamide and would not direct or allow Patheon to fill those
orders, taking the same position it had with the other Products – that it was
entitled to do so under the terms of the Agreements. (Id. ¶¶ 97, 100, 114-117.)
5
Had Bion submitted the orders to Patheon, Patheon could have filled all of PLD’s
orders. (Id. ¶¶ 102, 120.)
When Patheon questioned why PLD’s orders had fallen, Bion still did not
forward the orders to Patheon. (Id. ¶ 61.) Instead, as early as July 2017, Bion
began instructing Patheon to focus on making the Products for Bion and not to
make them for PLD. (Id. ¶¶ 62, 83, 99, 146.) In September 2017, Bion requested
Patheon create new codes and print formats to distinguish Bion’s Products from
PLD’s. (Id. ¶¶ 63, 136.) By January 2018, Bion had received from Patheon for its
own use more than 260 million Ibuprofen softgels, 36 million Naproxen softgels,
25 million Cetirizine softgels, and 22 million Loperamide softgels which it was
stockpiling at a warehouse in Tennessee. (Id. ¶¶ 64, 83, 99, 119, 225.)
As a result of Bion’s conduct, there was a shortage of Products which
caused PLD to lose substantial sales and goodwill. (Id. ¶¶ 65, 68-70, 86, 92, 109,
126, 148, 154, 157; see also id. ¶¶ 103, 121 (alleging that the “substantial
shortage of Cetirizine” and “Loperamide softgels” “hindered PLD’s ability to meet
its contracts with its customers”).)
PLD has alleged that Bion committed unfair and deceptive trade practices in
violation of N.C. Gen. Stat. § 75-1.1 et seq. when it “improperly reduced or
rejected PLD’s orders for Products”, “failed to order from Patheon 100% of the
Products that PLD ordered”, “falsely represented to PLD that there was a shortage
of IBU-API and NAP-API in an attempt to justify its actions”, “intentionally withheld
finished product from PLD by directing Patheon not to ship Products manufactured
6
for PLD and, without cause, allowing the Products to sit in a warehouse in High
Point for many months after they were ready for shipment to PLD”, “sought to
create an artificial shortage of . . . Products in the marketplace by refusing PLD’s
purchase orders”, and “instructing Patheon to re-direct some of the manufacturing
capacity . . . to make Products for Bion . . . so that it would have a substantial
inventory of products . . . when the . . . Agreements expired”. (Id. ¶¶ 236-41.) In
addition, Bion refused to ship Products in December 2017 “unless PLD provided
Bion with detailed information about PLD’s customers and the quantities of
Products those customers have ordered.” (Id. ¶ 247.)
III.
Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the
pleadings are closed – but early enough not to delay trial – a party may move for
judgment on the pleadings.” A court considering a motion for judgment on the
pleadings must “view the facts presented in the pleadings and inferences drawn
therefrom in the light most favorable to the non-moving party.” Atwater ex rel.
Estate of Peterson v. Nortel Networks, Inc., 394 F. Supp. 2d 730, 731 (M.D.N.C.
2005) (citing Edwards v. City of Goldsboro, 178 F.3d 231, 248 (4th Cir. 1999)).
A motion pursuant to Rule 12(c) is analyzed under the same standard as a
motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Rules of
Civil Procedure. Massey v. Ojaniit, 759 F.3d 343, 347 (4th Cir. 2014). Therefore,
the complaint “must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
7
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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.” Id. (citing Twombly, 550 U.S. at 556); see also McClearyEvans v. Md. Dep’t of Transp., State Highway Admin., 780 F.3d 582, 585 (4th
Cir. 2015) (noting that a complaint must “contain[] sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face in the sense
that the complaint’s factual allegations must allow a court to draw the reasonable
inference that the defendant is liable for the misconduct alleged”). However, when
a complaint states facts that are “’merely consistent with’ a defendant’s liability, it
‘stops short of the line between possibility and plausibility of ‘entitlement to
relief.’’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).
When analyzing a Rule 12(c) motion, a court considers not only the
complaint and documents explicitly incorporated by reference and attached as
exhibits, but also the answer. See Goines v. Valley Cmty. Servs. Bd., 822 F.3d
159, 166 (4th Cir. 2016); Massey, 759 F.3d at 347. “The factual allegations of
the Answer are taken as true only where and to the extent they have not been
denied or do not conflict with the complaint.” Alexander v. City of Greensboro, No.
1:09-CV-293, 2011 WL 3360644, *2 (M.D.N.C. Aug. 3, 2011). Because a
plaintiff is not required to respond to allegations in an answer and those allegations
are deemed denied, a defendant cannot rely on allegations contained only in the
answer to support its motion. Id.
8
A.
A federal court with diversity jurisdiction must apply the choice-of-law rules
of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496
(1941), superseded by statute on other grounds. To determine North Carolina’s
choice-of-law rules for a claim of unfair and deceptive trade practices, “a federal
court must look first and foremost to the law of the state’s highest court.”
Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997, 1002 (4th Cir. 1998). If
North Carolina’s Supreme Court has not spoken on the issue, the court may look to
the North Carolina Court of Appeals for guidance. Id.
Bion argues that North Carolina’s choice of law rules dictate that the law of
New York or New Jersey, not North Carolina, applies to PLD’s unfair and deceptive
trade practices claim. (Mot. for J. on the Pleadings ¶ 4.) Because neither New
York law nor New Jersey law recognizes such a claim by a commercial reseller like
PLD, it is argued, PLD has failed to state a cognizable claim for unfair and
deceptive trade practices. (Id. ¶¶ 5, 6.) In response, PLD argues that North
Carolina’s choice-of-law rules dictate that North Carolina law applies to the unfair
and deceptive trade practices claim, (Pl.’s Br. in Opp’n at 17), but elects not to
address, in the alternative, whether New York or New Jersey law would still permit
it to assert the claim.
North Carolina’s Supreme Court has not addressed the state’s choice of law
for an unfair and deceptive trade practices claim. And, while the North Carolina
Court of Appeals has, two panels from the 1980’s used different choice-of-law
9
tests. See Stetser v. TAP Pharmaceutical Prods., Inc., 598 S.E.2d 570, 580 (N.C.
Ct. App. 2004) (recognizing a “split of authority”).3 In Andrew Jackson Sales v.
Bi-Lo Stores, Inc., 314 S.E.2d 797, 799 (N.C. Ct. App. 1984), the court
distinguished tort actions for which lex loci is the appropriate choice-of-law rule
from claims of unfair and deceptive trade practices to which the court “applied the
law of the state having the most significant relationship to the occurrence giving
rise to the action.” Two years later, the court in United Virginia Bank v. Air-Life
Associates, Inc., 339 S.E.2d 90, 93-94 (N.C. Ct. App. 1986), recognized that
“other cases have applied the ‘most significant relationship’ test to determine what
State’s law governs an action based on G.S. 75-1.1”, but found the “better rule”
is lex loci which applies “[t]he law of the State where the last act occurred giving
rise to . . . injury”.
In the following decade, a federal court sitting in North Carolina
acknowledged that some courts had since applied the most significant relationship
test to claims of unfair and deceptive trade practices, but that the North Carolina
Supreme Court had “refused to adopt the most significant relationship test” in tort
actions. United Dominion Indus., Inc. v. Overhead Door Corp., 762 F Supp. 126,
128 (W.D.N.C. 1991) (citing Boudreau v. Baughman, 368 S.E.2d 849, 854 (N.C.
1988)). The court recognized that a claim for unfair and deceptive trade practices
3
Bion filed a copy of an Order in Cardiorentis AG v. IQVIA Ltd., 18CVS2313,
2018 WL 6918711 (N.C. Sup. Ct. Dec. 31, 2018), as a suggestion of
subsequently decided authority on the application of North Carolina’s choice-of-law
rules for a claim of unfair and deceptive trade practices. [Docs. #144, 144-1.]
10
“is neither wholly tortious nor contractual in nature”, but “given the trend toward
use of the most significant relationship test in tort actions in general, the rejection
of this test for general torts by the North Carolina Supreme Court supports a view
that the North Carolina courts would also reject the test in [this] quasi-tort claim”.
Id. at 128 n.2; see also Associated Packaging, Inc. v. Jackson Paper Mfg. Co., No.
10CVS745, 2012 WL 707038, at *5 (N.C. Sup. Ct. (Mar. 1, 2012)) (unpublished)
(citing United Dominion Indus., Inc. and stating the same). Of “particular
importance” to the court was “the decision in United Virginia which rejected the
most significant relationship test in favor of the traditional test.” United Dominion
Indus., Inc., 762 F. Supp. at 129. Other federal district courts in North Carolina
have also applied the lex loci test to claims of unfair and deceptive trade practices.
See M-Tek Kiosk, Inc. v. Clayton, No. 1:15CV886, 2016 WL 2997505, at *12
(M.D.N.C. May 23, 2016), appeal dismissed (July 19, 2016); Best v. Time Warner
Inc., No. 1:11-CV-104-RLV-DSC, 2013 WL 66265, at *3 (W.D.N.C. Jan. 4,
2013); Martinez v. Nat’l Union Fire Ins. Co., 911 F. Supp. 2d 331, 338 (E.D.N.C.
2012); see also SmithKline Beecham Corp. v. Abbot Labs., No. 1:15CV360, 2017
WL 1051123, at *8 (M.D.N.C. Mar. 20, 2017) (applying lex loci test except where
“the place of injury is so open to debate that application of the significant
relationship test is more appropriate”). Cf. Edmondson v. Am. Motorcycle Ass’n,
Inc., 7 F. App’x 136, 150 (4th Cir. 2001) (unpublished) (“We have held that when
the place of injury is open to debate in regard to an unfair trade practices claim,
North Carolina choice of law rules require a court to apply the law of the state with
11
the most significant relationship to the transaction.”). It is determined that the
North Carolina Supreme Court would apply the lex loci test to determine which
state’s law applies to PLD’s unfair and deceptive trade practices claim.
Furthermore, this is not a case in which the place of injury is unclear such that the
most significant relationship test should be employed.
The lex loci test dictates that the “law of the State where the last act
occurred giving rise to [PLD’s] injury governs [its] Sec. 75-1.1 action.” United Va.
Bank, 339 S.E.2d at 94. The last act differs depending on the alleged tort. See,
e.g., Harco Nat’l Ins. Co. v. Grant Thornton LLP, 698 S.E.2d 719, 724 (N.C. Ct.
App. 2010) (finding that the lower court erred when it analyzed where the
negligent misrepresentation took place, rather than where the plaintiff suffered
injury); Associated Packaging, Inc., 2012 WL 707038, at *6 (explaining that the
last act for a negligence claim is the suffering of actual injury and for a negligent
misrepresentation claim is the detrimental reliance). The last act giving rise to a
claim of unfair and deceptive trade practices is the suffering of damages.
SmithKline Beecham Corp., 2017 WL 1051123, at *8; see also Harco Nat’l Ins.
Co., 698 S.E.2d at 725 (“[A]t a minimum, it is necessary for a . . . court, applying
the lex loci test, to make some attempt to determine the state in which the injured
party actually suffered its harm.”) When a plaintiff suffers “commercial or financial
injury rather than physical injury, courts often look at the location where the
economic loss was felt.” Clifford v. Am. Int’l Specialty Lines Ins. Co., No.
1:04CV486, 2005 WL 2313907, at *8 (M.D.N.C. Sept. 21, 2005) quoted in
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SmithKline Beecham Corp., 2017 WL 1051123, at *8. While a plaintiff may feel
the economic loss in the state of its principal place of business, North Carolina
courts have rejected a bright line rule requiring such a finding. United Dominion
Indus., Inc., 762 F. Supp. at 130 (declining to find a “bright line rule that in all
cases a[n] injury is sustained where corporate headquarters are located”); Harco
Nat’l Ins. Co., 698 S.E.2d at 725-26 (finding United Dominion Indus. persuasive
and rejecting a bright line rule because there are “a significant number of cases . . .
where a plaintiff has clearly suffered its pecuniary loss in a particular state,
irrespective of that plaintiff’s residence or principal place of business”). Here, PLD
has failed to allege that it suffered damages – either when it felt the economic loss
of Bion’s conduct or detrimentally relied on Bion’s misrepresentations – in North
Carolina.
PLD argues that its unfair and deceptive trade practices claim “is based on
Bion’s scheme to deprive PLD of Products that Bion was required to manufacture
and provide to PLD in North Carolina under the Supply Agreements”, “[t]he express
terms of [which] tied the parties’ relationship to North Carolina and North Carolina
law.” (Pl.’s Br. in Opp’n at 19.) To the extent PLD is suggesting that the
governing law provisions in the Agreements dictate that North Carolina law apply
to its unfair and deceptive trade practices claim, both the language of the
Agreements and the law belie that argument. Each of the Agreements provides, in
relevant part, that “[t]his Agreement shall be governed and construed in all
respects by and under the laws of North Carolina, without regard to any choice of
13
law principles that would obtain a different result.” (Ibuprofen Agreement § 14.3
(emphasis added); Naproxen Agreement § 17.6 (emphasis added); Cetirizine
Agreement § 17.6 (emphasis added); Loperamide Agreement § 13.6 (emphasis
added).) This provision may require application of North Carolina law to the
interpretation and enforcement of the Agreement, but even by its own terms, such
application is limited to the Agreement. “[I]t does not provide the applicable law
for a claim based on unfair and deceptive acts.” United Dominion Indus., Inc., 762
F. Supp. at 128 (“Because the liability under N.C. Gen. Stat. § 75-1.1 is not
contractual, the choice of law provision included in the agreement . . . is not
applicable.”); see also ITCO Corp. v. Michelin Tire Corp., 722 F.2d 42, 49 n.11
(4th Cir. 1983) (“We are satisfied that North Carolina courts would apply N.C.
Gen. Stat. § 75-1.1 to the facts presented here without regard to the presence of
the contractual choice of law provision. The nature of the liability allegedly to be
imposed by the statute is ex delicto, not ex contractu.”).
In addition, PLD argues that Bion’s conduct occurred in North Carolina. (Pl.’s
Br. in Opp’n at 20.) PLD contends that “Bion made misrepresentations to PLD in
North Carolina”, (id.), and it alleged that, on November 20, November 22, and
December 4, 2017, Samtani told Cain – who was in North Carolina at the time –
that there was a shortage of API. PLD looks to these three occasions on which
Cain, present in North Carolina at the time, received emails and a telephone call
from Samtani as support for its position that Bion’s misrepresentations took place
in North Carolina. Even so, as the Harco court explained, the focus is not where
14
the alleged misrepresentation took place. Instead, the question is where PLD
suffered harm from those misrepresentations. There is no allegation that PLD, a
Delaware limited liability company with its principal place of business in New York,
detrimentally relied on or felt the economic impact of those misrepresentations in
North Carolina.
PLD correctly notes that Bion too narrowly focuses on PLD’s allegations of
misrepresentations and omits allegations that Bion’s other conduct was also unfair
and deceptive. (Id.) According to PLD, “[t]he bulk of PLD’s claim is premised on
Bion’s actions.” (Id.) These actions include Bion’s failure to submit PLD’s orders to
Patheon, instructing Patheon not to deliver Products to PLD, work with Patheon to
develop codes and imprints for Bion’s exclusive use, and causing Patheon to use
API to manufacture Products for Bion instead of PLD. (Id. at 20-21.) According to
PLD, “[a]ll of these unfair and deceptive acts took place in North Carolina and
support PLD’s Chapter 75 claim.” (Id. at 21.)
There is no disputing that Patheon, the High Point, North Carolina
manufacturer of the Products, was an integral part of Bion’s alleged unfair and
deceptive acts. However, Patheon is not a party to this action and is not alleged
to have acted unlawfully. Despite PLD’s argument that it “affirmatively alleged
that Bion’s acts . . . occurred in North Carolina” and that “Patheon’s re-directing its
manufacturing operations for the Products – which occurred pursuant to Bion’s
mandate in North Carolina”, (id. at 22), PLD is simply not alleged to have suffered
damages in North Carolina, despite its argument otherwise, (see, e.g., id.).
15
PLD tries to recharacterize its injury from that which it alleged – loss of
substantial sales and reputation – to “physical deprivation of Products in North
Carolina”, (id.). But, this case is not like United Virginia Bank, where the alleged
injury was sustained in Virginia when a plane was sold below the promised price,
or Lloyd v. Carnation Co., 301 S.E.2d 414 (N.C. Ct. App. 1983), where the
alleged injury was sustained in Virginia when the plaintiff, an exclusive territorial
distributor of bull semen, stopped his sales once another salesman sold bull semen
in Virginia, or Harco, where the alleged injury was sustained in North Carolina
when the plaintiff’s funds held in a North Carolina trust fund were seized. While
PLD did not receive all of the Products it ordered, the alleged resulting injury is loss
of sales, which was not alleged to have been felt in North Carolina.
PLD argues that SmithKline Beecham Corp. supports the application of North
Carolina law. There, the alleged injury to the plaintiff, GSK, was nationwide lost
market share and profits from sales of Lexiva, an HIV drug, after the defendant,
Abbot, increased the price to GSK of Abbot’s booster drug, Norvir, 400 percent.
2017 WL 1051123, at *3, *8. GSK was a Pennsylvania corporation with its
principal office in Pennsylvania, but with headquarters in North Carolina and
Pennsylvania. Id. at *2. It alleged that “the center of economic impact was in
North Carolina where the heart for ‘research and development facilities and
commercial operations in the HIV/AIDS area’ was located”. Id. at *9. While GSK
“may have suffered injury in Pennsylvania”, the court found North Carolina was
“where it felt the damages associated with the loss in market share and lost profits
16
related to the HIV market and Lexiva” and, therefore, applied North Carolina law to
the unfair and deceptive practices claim. Id. at *9. PLD argues that this “is
precisely what happened here” because the “Agreements were formed in North
Carolina”, “Products were manufactured exclusively in North Carolina”, “PLD
inspected the manufacturing facilities in North Carolina”, and “[t]he withholding of
the Products in North Carolina damaged PLD.” (Pl.’s Br. in Opp’n at 23-24.)
Although PLD argues that “[u]nder the reasoning of GSK, North Carolina law must
apply,” (id. at 24), the facts of SmithKline Beecham Corp. and this case are easily
distinguishable. PLD’s only alleged presence in North Carolina is its general
counsel’s office in Winston-Salem, North Carolina and its visits to Patheon’s
manufacturing facility; whereas, GSK’s research and development facilities and
commercial operations for its HIV/AIDS business were in North Carolina. The
reasoning of SmithKline Beecham Corp. does not require application of North
Carolina law here.
PLD included among its reasons to apply SmithKline Beecham Corp. the
assertion that “Products were delivered to PLD in North Carolina.” (Id. at 23
(emphasis added); see also id. at 6, 13, 15 (all stating that Products were delivered
to PLD in High Point).) The Amended Complaint merely alleged that the Products
were shipped by Patheon from High Point, North Carolina directly to PLD. (See,
e.g., Am. Compl. ¶ 50, 74, 96, 113.) PLD’s argument must be based on the
F.O.B. term in the Agreements. (See, e.g., Ibuprofen Agreement § 3.1 (“Banner’s
duties shall include . . . arranging for shipment of the Products, F.O.B. Banner’s
17
manufacturing facility.”).) The “general rule” is that “[w]here the contract of sale
provides for a sale f.o.b. the point of shipment, the title is generally held to pass, in
the absence of a contrary intention between the parties, at the time of the delivery
of the goods for shipment at the point designated.” Peed v. Burleson’s Inc., 94
S.E.2d 351, 353 (N.C. 1956); see also N.C. Gen. Stat. § 25-2-319(1)(a). This
passing of title to PLD when the Products were “delivered” at Patheon’s facility,
where they were also manufactured, to be shipped directly to PLD does not add
sufficient weight to the facts to make them any more analogous to those in
SmithKline Beecham Corp. or to support a finding that PLD suffered injury in North
Carolina.4
Although there is no bright line rule that a company suffers its injury at its
principal place of business, the allegations here lead to one conclusion. PLD
suffered its injury – detrimentally relied on misrepresentations and felt the harm –
in New York where it maintains its principal place of business. Accordingly, North
Carolina’s lex loci choice-of-law rule dictates that New York law apply to PLD’s
claim of unfair and deceptive trade practices.
4
PLD alleged that Bion’s conduct also injured North Carolina consumers and
retailers, as well as Patheon’s operations and workers at its High Point, North
Carolina facility. (E.g., Am. Compl. ¶¶ 59, 60, 65.) But, the question is not
whether anyone in North Carolina was harmed by Bion’s conduct, but whether PLD
suffered injury there.
18
B.
Bion argues that, although New York law applies here, New York’s
“statutory prohibition on unfair and deceptive trade practices” does not protect
PLD because the statute “applies exclusively to conduct directed to consumers”
and “PLD is not a consumer”. (Defs.’ Br. in Supp. at 18.) PLD offers no response
to Bion because it focuses solely on the application of North Carolina law. Despite
Bion’s over-simplified argument, it is determined that PLD cannot bring its unfair
and deceptive trade practices claim against Bion under New York law.
New York law prohibits “[d]eceptive acts or practices in the conduct of any
business, trade or commerce or in the furnishing of any service”, N.Y. Gen. Bus.
Law § 349(a) (McKinney 2019), and “is directed at wrongs against the consuming
public”, Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A.,
647 N.E.2d 741, 744 (N.Y. 1995) (describing the initial grant of enforcement
authority to the Attorney General and the Governor’s statement that the law was
“an important new weapon in New York State’s long standing efforts to protect
people from consumer frauds”). “The statute was intended to empower
consumers; to even the playing field in their disputes with better funded and
superiorly situated fraudulent businesses.” Teller v. Bill Hayes, Ltd., 630 N.Y.S.2d
769, 774 (N.Y. App. Div. 1995); see also id. at 773 (listing “typical transactions
cognizable” under § 349 to include false advertising, pyramid schemes, deceptive
pre-ticketing, misrepresenting of the origin, nature or quality of the product, false
testimonial, deceptive collection against debtors, deceptive practices of insurance
19
companies, and bait and switch). As evidence of the statute’s consumer focus,
some courts describe the disputed transaction as modest and note the limited
statutory relief which caps treble damages for even willful or knowing conduct at
$1,000. See, e.g., id. (citing N.Y. Gen. Bus. Law § 349(h)).
As applied to a claim of deceptive practices, consumers are “those who
purchase goods and services for personal, family or household use”. Sheth v. N.Y.
Life Ins. Co., 709 N.Y.S.2d 74, 273 A.D.2d 72, 72 (N.Y. App. Div. 2000); see
also Cruz v. NYNEX Info. Res., 703 N.Y.S.2d 103, 106 (N.Y. App. Div. 2000) (“In
New York law, the term ‘consumer’ is consistently associated with an individual or
natural person who purchases goods, services or property primarily for ‘personal,
family or household purposes’.”).
The elements of a § 349 claim for deceptive acts or practices are that the
act or practice (1) was consumer-oriented, (2) materially misleading, and (3)
resulted in injury to the plaintiff. Stutman v. Chem. Bank, 731 N.E.2 608, 611
(N.Y. 2000)). An act is consumer-oriented when it has “a broader impact on
consumers at large.” Oswego Laborers’ Local 214 Pension Fund, 647 N.E.2d at
744. In other words, the conduct must “potentially affect similarly situated
consumers.” Id. at 745. See, e.g., Gaidon v. Guardian Life Ins. Co. of Am., 725
N.E.2d 598, 94 N.Y.2d 330, 344 (N.Y. 1999) (finding the defendant insurance
company’s extensive marketing scheme to be consumer-oriented); Karlin v. IVF
Am., Inc., 712 N.E.2d 662, 93 N.Y.2d 282, 293 (N.Y. 1999) (finding the
defendant’s multi-media dissemination of information to the public to be consumer20
oriented); Wilner v. Allstate Ins. Co., 893 N.Y.S.2d 208, 71 A.D.3d 155, 164
(N.Y. App. Div. 2010) (finding the defendant insurance company’s conduct was
consumer-oriented because the homeowners’ insurance provision at issue was not
unique to the plaintiffs, but instead was in every policy and, therefore, required any
consumer insured by the policy to act according to its terms). Section 349 “was
not intended to supplant an action to recover damages for breach of contract
between parties to an arm’s length contract.” Teller, 630 N.Y.S.2d at 774.
“A plaintiff need not be a consumer to bring a claim under § 349 . . . , but
the challenged conduct must affect consumers.” Axion Inv. Advisors, LLC v.
Deutsche Bank AG, 234 F. Supp. 3d 526, 537 (S.D.N.Y. 2017). In Oswego
Laborers’ Local 214 Pension Fund, the plaintiffs were not-for-profit associations
that administered pension benefits and health insurance of union members and
their beneficiaries and sought to open interest-bearing savings accounts with
defendant bank. Id. at 743. However, years after the accounts were opened, the
plaintiffs learned that the bank had not been paying interest on certain principal
amounts, because the bank had opened the accounts as though they were for forprofit commercial entities whose principal upon which interest could be paid was
capped. Id. at 743-44. The court found that the bank’s conduct was consumeroriented because it “dealt with plaintiffs’ representative as any customer entering
the bank to open a savings account, furnishing the Funds with standard documents
presented to customers upon the opening of accounts.” Id. at 745. Further, “[t]he
account openings were not unique to these two parties, nor were they private in
21
nature of a ‘single shot transaction’”. Id. The bank’s actions could have
“potentially affect[ed] similarly situated consumers.” Id.
Similarly, in North State Autobahn, Inc. v. Progressive Insurance Group Co.,
953 N.Y.S.2d 96, 99 (N.Y. App. Div. 2012), the plaintiffs operated a vehicle repair
shop and sued the defendant insurance companies which underwrote automobile
insurance policies in the state of New York. The defendants established and
advertised a direct repair program (“DRP”) through which they contracted with
vehicle repair shops for rates and repair terms, but the plaintiffs were not members
of the DRP. Id. The defendants allegedly misled claimants to believe they had to
have their vehicles repaired at DRP shops and misrepresented the workmanship,
price, timeliness, and character of non-DRP shops. Id. They also allegedly issued
repair appraisals well below market value and the plaintiffs’ estimates and told
claimants that the plaintiffs would make only partial payments for repairs which
would lead to out-of-pocket costs. Id. Despite the defendants’ argument that this
was a private contract dispute, the court found that the defendants’ conduct was
consumer-oriented because it misled the plaintiffs’ customers, “was part of an
institutionalized program”, was a “standard practice”, and “was routinely applied
to all claimants who sought to have their vehicles repaired by the plaintiffs or by
any other independent repair shop.” Id. at 102. This conduct had a “broad[]
impact on consumers at large”. Id. (alteration in original).
As is apparent, “consumer orientation does not preclude its application to
disputes between businesses per se”. Cruz, 703 N.Y.S.2d at 107. However, “it
22
does severely limit it.” Id. “Where the gravamen of the complaint is harm to a
business as opposed to the public at large, the business does not have a
cognizable cause of action under § 349.” Vitolo v. Mentor H/S Inc., 426 F. Supp.
2d 28, 34 (E.D.N.Y. 2006) (quoting Gucci Am., Inc. v. Duty Free, Ltd., 277 F.
Supp. 2d 269, 274 (S.D.N.Y. 2003), and dismissing the § 349 claim because the
“[c]omplaint focuse[d] almost entirely on the losses suffered by Plaintiff and his
business, rather than to consumers or Plaintiff’s patients”). “Section 349 . . . was
not intended to apply to arms-length business transactions between sophisticated
parties, but rather, ought to redress wrongs committed against consumers in
general.” Id. at 37. “[C]learly not cognizable under the statute[] are large, private,
single-shot contractual transactions.” Teller, 630 N.Y.S.2d at 773. See also In re
Rezulin Prods. Liability Litig., 390 F. Supp. 2d 319, 337-38 (S.D.N.Y. 2005)
(finding the transaction not to be consumer-oriented where it was not intended for
the ultimate consumers, but instead involved two large, sophisticated parties and
“sizeable economic consequences”); N.Y. Univ. v. Continental Ins. Co., 662
N.E.2d 763, 87 N.Y.2d 308, 321 (N.Y. 1995) (finding the transaction was
“essentially a ‘private’ contract dispute over policy coverage and the processing of
a claim” that did not “affect[] the public at large” because the parties were large
and knowledgeable, the insurance policy was complex and tailored to meet the
university’s needs, the premiums exceeded $55,000, and loss was covered up to
$10 million); Oswego Laborers’ Local 214 Pension Fund, 647 N.E.2d at 744
23
(explaining that “[p]rivate contract disputes, unique to the parties, . . . would not
fall within the ambit of the statute”).
For example, in Pfizer, Inc. v. Stryker Corp., 256 F. Supp. 2d 224, 225
(S.D.N.Y. 2003), the plaintiff sold and the defendant purchased the assets and
stock of a subsidiary of the plaintiff which manufactured artificial replacement knee
joints. The defendant alleged in its counterclaims that the plaintiff “made
fraudulent misrepresentations of then existing facts” and agreed to perform when
it never intended to do so, in violation of § 349. Pfizer, Inc. v. Stryker Corp., No.
02Civ.8613LAK, 2003 WL 21660339, at *1, 4 (S.D.N.Y. 2003). However, the
court found that
[a]lthough consumers eventually stood to be affected by any defects
in the product at issue, the questions whether Pfizer told Stryker the
truth when it represented that the business was in compliance with
law and whether it intended to comply with its notice and related
obligations are essentially private matters. This was a customcrafted, $2 billion transaction between two large, sophisticated
parties. It does not come within Section 349.
Id. at *4.
Here, the disputed conduct is more akin to that in Pfizer, Inc. than any of the
cases involving consumer-oriented conduct. First, the gravamen of the Amended
Complaint is harm to PLD, not to the public at large. Although PLD alleged harm to
consumers, those allegations are sprinkled throughout the complaint alongside
allegations of injury to retailers and Patheon’s operations, (Am. Compl. ¶¶ 59, 60,
88, 89, 107, 108, 124, 125, 149), and are secondary to the allegations of harm
to PLD. For example, while Bion’s conduct allegedly “injured the consumers of
24
generic Ibuprofen softgels in North Carolina by limiting business productivity and
product availability” and causing consumers “who preferred the softgel dosage . . .
to pay a higher price to purchase the brand product”, (id. ¶ 65), the same conduct
allegedly caused PLD “to lose substantial sales”, (id. ¶¶ 65, 68), lose “goodwill”,
(id. ¶ 69), and suffer “damages and irreparable harm”, (id. ¶ 70). The allegations
of harm resulting from Bion’s conduct with respect to generic Naproxen, Cetirizine,
and Loperamide are similar to those above. (See id. ¶¶ 90, 104, 121, 150 (harm
to consumers), ¶¶ 86, 90, 92, 106, 123, 126, 148, 154, 155 (harm to PLD)).
This harm to PLD is repeated often and highlighted in the Complaint. For example,
at the conclusion of the factual allegations related to each of the Agreements, PLD
alleges that Bion “has caused damages and irreparable harm to PLD.” (Id. ¶¶ 70,
92, 109, 126.) The essence of PLD’s complaint is that Bion’s alleged anticompetitive conduct was designed to place Bion in the best position possible to
compete with PLD once the Agreements expired and, in the meantime, PLD
suffered substantial lost sales, reputational damages, and irreparable harm “in
excess of $5 million.” (Id. ¶ 157.)
Next, this dispute is not between parties with disparate bargaining power.
Bion and PLD are sophisticated businesses involved in the manufacture and sale of
generic pharmaceuticals to well-known national retailers, all under the watchful eye
of the Food and Drug Administration which granted Bion manufacturing approval,
(e.g., id. ¶ 28). PLD essentially served as an intermediary between Bion’s allegedly
25
tortious conduct and consumers, providing protection for consumers unsuspecting
of Bion’s ulterior motives.
Furthermore, these parties and their predecessors have contracted with each
other since 2003 for the manufacture and sale of millions of capsules of these
Products, (e.g., id. ¶¶ 66, 91, 122), and these contracts and their amendments
are tailored to the parties’ capabilities and needs.
In sum, Bion’s alleged conduct does not have “a broader impact on
consumers at large” and, is, thus, not consumer-oriented. Instead, this is
essentially a private dispute between sophisticated parties that is not covered by
the prohibitions of § 349.
IV.
For the reasons stated in this Memorandum Opinion, IT IS HEREBY
ORDERED that Defendants’ Motion for Judgment on the Pleadings as to Plaintiff’s
Claim for Unfair and Deceptive Trade Practices (Seventh Cause of Action) [Doc.
#136] is GRANTED and that Plaintiff’s Seventh Cause of Action is DISMISSED. IT
IS FURTHER ORDERED that Defendants’ Motion for Judgment on the Pleadings as
to Plaintiff’s Claim for Unfair and Deceptive Trade Practices (Sixth Cause of
Action) [Doc. #123] which sought to dismiss a claim asserted in a complaint that
has since been amended is DENIED AS MOOT.
This the 14th day of February, 2019.
/s/ N. Carlton Tilley, Jr.
Senior United States District Judge
26
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