MYLAN, INC. et al v. ZORICH

Filing 15

MEMORANDUM AND OPINION re 3 MOTION to Remand to State Court and For Expedited Briefing and Relief by MYLAN INSTITUTIONAL, LLC, MYLAN, INC. Signed by Chief Magistrate Judge Lisa Pupo Lenihan on 2/16/2012. (clh)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

MYLAN, INC., and MYLAN
INSTITUTIONAL, LLC,
Plaintiffs,
v.
GEORGE ZORICH,
Defendant.

)
)
)
)
)
)
)
)
)
)
)

Civil Action No. 2:12-cv-80
Chief Magistrate Judge Lisa Pupo
Lenihan
ECF No. 3

OPINION
LENIHAN, Chief Magistrate Judge
This action arises from the alleged breach of non-competition and non-solicitation
provisions contained in a Consulting Agreement entered into between Plaintiff, Mylan, Inc., and
Defendant, George Zorich. Currently pending before the Court is Plaintiffs’ Motion for Remand
(ECF No. 3). In support of this motion, Plaintiffs argue that Zorich improperly removed this
action from the Court of Common Pleas of Washington County based upon diversity of
citizenship because Plaintiff Mylan Institutional LLC and Defendant Zorich are both citizens of
Illinois, and Zorich cannot show that Mylan Institutional was fraudulently joined. For the
reasons set forth below, the Court will Grant Plaintiff’s Motion for Remand.
I.

BACKGROUND & PROCEDURAL HISTORY
The relevant facts, which the Court accepts as true for purposes of deciding the motion to

remand,1 are as follows.

Mylan, Inc. (“Mylan”), is a Pennsylvania corporation located in

Canonsburg, Pennsylvania, and is the second largest generic pharmaceutical company in the
United States. (Compl. ¶1, ECF No. 1-2.) Mylan Institutional LLC (“Mylan Institutional”) is a
Delaware limited liability company with its headquarters located in Rockford, Illinois. (Id. at
¶2.) Mylan Institutional, a subsidiary of Mylan (Id. at ¶10), is a customer-focused business
providing a variety of pharmaceutical products and services to institutional customers (Id. at ¶2).
At all relevant times, Defendant George Zorich (“Zorich” or “Defendant”) resided in or
near Chicago, Illinois. (Id. at ¶¶ 3, 35.) In 2006, Zorich was hired by Bioniche Pharma USA
LLC (“Bioniche”) as President of its North American operations. (Id. at 7.) Bioniche was an
Illinois based pharmaceutical company specializing in difficult to formulate and manufacture
injectable drugs. (Id. at ¶6.)
On July 14, 2010, Mylan acquired Bioniche, which became a part of Mylan Institutional.
(Id. at ¶10.) Mylan Institutional currently conducts the business of Bioniche. (Id.) At the time
of the acquisition of Bioniche, Zorich was president of Bioniche’s North American operations.
As part of the share purchase agreement (“SPA”) executed by Bioniche and Mylan, certain
specified employees of Bioniche, including Zorich, agreed to enter into consulting agreements
with Mylan. (Id. at ¶11.) Zorich’s promise to enter into a consulting agreement with Mylan, in
part, induced Mylan to execute the SPA. (Id.) In return for Zorich’s promise to enter into a
consulting agreement and in concert with the acquisition, Mylan (or Bioniche at Mylan’s
direction) agreed to provide Zorich with a cash bonus and permission to exercise Bioniche stock

1

In evaluating the fraudulent joinder exception to complete diversity of citizenship, the court is required
to focus on the complaint at the time the notice of removal was filed, and must assume that all factual
allegations in the complaint are true. In re Briscoe, 448 F.3d 201, 217 (3d Cir. 2006) (citing Batoff v.
State Farm Ins. Co., 977 F.2d 848, 851-52 (3d Cir. 1992)).
2

options which Mylan agreed to purchase at a premium, as well as additional consideration set
forth in the Consulting Agreement entered into on July 14, 2010, between Mylan and Zorich.
(Id. at ¶¶12-13; Ex. A to Compl., ¶3.)
Under the Consulting Agreement, Zorich’s services consisted of devoting his “full
working time and attention to the business and affairs of [Mylan] and its affiliate companies and
subsidiaries (collectively, the “Mylan Companies”) and . . . to serve [Mylan] faithfully and to the
best of [his] ability, and use [his] best efforts to promote the interests of the Mylan Companies.”
(Compl., ¶¶19, 26; Ex. A to Compl., ¶1). In connection with these services, Zorich gained
access to the confidential and trade secret information of Mylan.
Pursuant to paragraph 5 of the Consulting Agreement, Zorich agreed that for 24 months
after the termination of the agreement, he would not become employed or associated with any
person, corporation or other entity engaged in research, development, manufacturing, production,
marketing, promotion or sale of any product the same as or similar to those of the Mylan
Companies, or which competes with any line of business with the Mylan Companies. (Ex. A to
Compl. at ¶5(a).) Zorich also agreed not to solicit, divert or take away any customers or
suppliers of Mylan Companies or to contact same for such purposes. (Ex. A to Compl. at ¶5(b).)
In addition, Zorich agreed not to solicit, hire or otherwise induce any employee of Mylan
Companies to leave for any reason. (Ex. A to Compl. ¶5(c).) The Consulting Agreement was
extended by the parties and eventually terminated in June of 2010. (Compl., ¶17.)
Mylan believes that Zorich has breached the non-compete provision of the Consulting
Agreement. Sometime prior to January 10, 2012, it is believed that Zorich joined a competitor of
Mylan, W.G. Critical Care, as its chief executive officer. (Compl., ¶¶30-31.) According to a
description of its services in the trademark application filed with the United States Patent and
3

Trademark Office, W.G. Critical Care offers a “full line of injectable generic pharmaceutical
preparations.” (Id. at ¶32.)

Mylan believes that Zorich continues to live and work for W.G.

Critical Care in Illinois. (Id. at ¶35.)
Mylan Institutional derives a sizeable amount of its business from the market for generic
injectables and these products comprise a substantial component of the marketplace in which
Mylan Institutional does business.

(Compl., ¶33.)

Mylan Institutional operates the entity

acquired by Mylan from Zorich’s former employer, Bioniche. (Id.) The majority of Zorich’s
consulting duties under the Consulting Agreement involved work for Mylan Institutional. (Id.)
Mylan believes that Zorich is serving in an executive capacity for W.G. Critical Care that is
substantially similar to the capacity in which he worked for Bioniche and later provided through
consulting services to Mylan. (Id. at ¶34.)
Mylan further believes that Zorich breached the non-solicitation provision in paragraph 5
of the Consulting Agreement by soliciting Michael Bohling, former director of sales operations
at Mylan Institutional, to join W.G. Critical Care as vice president of sale operations, where he
would be working to market products including generic injectables.2 (Id. at ¶¶36-37.)

As

director of sales operations at Mylan Institutional, Bohling was privy to Mylan’s confidential,
propriety, and trade secret information. (Id. at ¶39.)

Prior to his resignation from Mylan

Institutional, Bohling downloaded nearly 40 gigabytes of proprietary and confidential data,
including Mylan Institutional’s largest share drive. (Id. at ¶¶37, 41.)
Consequently, on or about January 19, 2012, Mylan and Mylan Institutional sought
injunctive relief for breach of the Consulting Agreement by filing the instant lawsuit in the Court

2

Mylan believes that Zorich solicited a second Mylan employee, Kara Maxwell, to leave Mylan and join
W.G. Critical Care. (Compl., ¶43.)
4

of Common Pleas of Washington County, Pennsylvania (“common pleas court” or “state court”).
(Notice of Removal at ¶1, ECF No. 1.) On that same date, Plaintiffs filed an ex parte motion for
special injunction and expedited discovery, and the common pleas court entered a temporary
order enjoining Zorich from being employed by W.G. Critical Care and soliciting Plaintiffs’
employees; directing Zorich to preserve documents/information related to the litigation and to
return any of Plaintiffs’ confidential, proprietary, and trade secret information; and granting
Plaintiffs leave to conduct expedited discovery. (Ex. C attached to Notice of Removal, ECF No.
1-4.) The common pleas court also ordered that a hearing on the request for preliminary
injunction would be held on January 24, 2012. (Id.)

However, before that hearing could take

place, Zorich filed a timely Notice of Removal, pursuant to 28 U.S.C. §1441(a), thereby
removing the instant action to this Court on January 24, 2012.
In support of his removal petition, Zorich submits that this Court has original subject
matter jurisdiction over this action pursuant to 28 U.S.C. §1332(a)(1), as there is complete
diversity of citizenship between the parties and the amount in controversy exceeds $75,000,
exclusive of interest and costs. (Notice of Removal at ¶6.)

Zorich contends that although

Mylan Institutional is a citizen of Illinois (by virtue of its principal place of business being
located in Illlinois),3 as well as Zorich, Mylan Institutional was misjoined as a plaintiff because
(1) it is not a party to the Consulting Agreement, and thus, lacks standing to bring this lawsuit,
and (2) it was not an intended third party beneficiary of the Consulting Agreement. (Id. at ¶¶93

Zorich further asserts that Mylan Institutional is a citizen of Delaware because it is a Delaware limited
liability company. Zorich is incorrect. For diversity purposes, the citizenship of a limited liability
company is determined by the citizenship of each of its members. Zambelli Fireworks Mfg. Co., Inc. v.
Wood, 592 F.3d 412, 419-20 (3d Cir. 2010). Zorich does not identify the members of Mylan Institutional
in his Notice of Removal. However, in light of this Court’s ruling infra that Mylan Institutional was
fraudulently joined as a Plaintiff, and therefore will be dismissed as a party plaintiff, Zorich need not
establish the citizenship of the members of Mylan Institutional.
5

11.) Therefore, under the doctrine of fraudulent joinder, Zorich maintains that the citizenship of
Mylan Institutional must be disregarded for purposes of determining diversity. When Mylan
Institutional’s citizenship is disregarded, Zorich contends complete diversity exists.
In response, Plantiffs filed a motion to remand this action to state court on January 25,
2012 (ECF No. 3), arguing that under Pennsylvania law, Mylan Institutional is an intended third
party beneficiary under the Consulting Agreement, and therefore, complete diversity does not
exist. The Court set an expedited briefing schedule on the motion to remand. The motion and
response in opposition have been fully briefed.

Thus, the motion to remand is ripe for

disposition.
II.

LEGAL STANDARD – REMOVAL & MOTION TO REMAND
Section 1441 of Title 28, United States Code, governs the removal of a case to federal

court. Generally, “any civil action brought in a State court of which the district courts of the
United States have original jurisdiction, may be removed by the defendant . . . , to the district
court of the United States for the district and division embracing the place where such action is
pending.” 28 U.S.C. §1441(a). “The removal statutes ‘are to be strictly construed against
removal and all doubts should be resolved in favor of remand.’” Boyer v. Snap-On Tools Corp.,
913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809
F.2d 1006, 1010 (3d Cir. 1987) (other citations omitted)); Sikirica v. Nationwide Ins. Co., 416
F.3d 214, 219 (3d Cir. 2005). Where a motion for remand is filed, the defendant has the burden
of proving that removal was proper. Sikirica, 416 F.3d at 219 (citing Samuel-Bassett v. KIA
Motors Am., Inc., 357 F.3d 392, 396 (3d Cir. 2004)).
When a state court action has been removed to federal court based on diversity of
citizenship, as in the present case, complete diversity of citizenship of the parties must exist and
6

none of the defendants may be a citizen of the forum state. 28 U.S.C. §1441(b); In re Briscoe,
448 F.3d 201, 215 (3d Cir. 2006) (citation omitted). The doctrine of fraudulent joinder provides
an exception to this rule. In re Briscoe, 448 F.3d at 215-16 (citation omitted). In order for this
exception to apply and thus provide a basis for this Court’s subject matter jurisdiction, the
removing party must “establish that the non-diverse [party was] ‘fraudulently’ named or joined
solely to defeat removal jurisdiction.”

Id. at 216.

If a court concludes that a party was

fraudulently joined, “the court can ‘disregard, for jurisdictional purposes, the citizenship of
certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse
defendants, and thereby retain jurisdiction.’” Id. (quoting Mayes v. Rapoport, 198 F.3d 457, 461
(4th Cir.1999)). However, if the court finds that the joinder was not fraudulent and therefore it
lacks subject matter jurisdiction over the removed action, the matter must be remanded to state
court. Id. (citing 28 U.S.C. §1447(c)). In making this determination, the Court may look beyond
the pleadings to identify indicia of fraudulent joinder. Id. at 219 (citing Abels v. State Farm Fire
& Cas. Co., 770 F.2d 26 (3d Cir. 1985)). However, in doing so, the court of appeals cautioned
that a “district court must not step ‘from the threshold jurisdictional issue into a decision on the
merits.’” Id. (citing Boyer, 913 F.2d at 112; Batoff v. State Farm Ins. Co., 977 F.2d 848, 852 (3d
Cir. 1992)).
The court of appeals has delineated the following standards to be applied in a fraudulent
joinder analysis:
[T]he removing party carries a heavy burden of persuasion in
[demonstrating fraudulent joinder]. It is logical that it should have
this burden, for removal statutes are to be strictly construed against
removal and all doubts should be resolved in favor of remand.
Joinder is fraudulent where there is no reasonable basis in fact or
colorable ground supporting the claim against the joined
7

defendant, or no real intention in good faith to prosecute the action
against the defendants or seek a joint judgment. But, if there is
even a possibility that a state court would find that the complaint
states a cause of action against any one of the resident defendants,
the federal court must find that joinder was proper and remand the
case to state court....
In evaluating the alleged fraud, the district court must focus on the
plaintiff's complaint at the time the petition for removal was filed.
In so ruling, the district court must assume as true all factual
allegations of the complaint. It also must resolve any uncertainties
as to the current state of controlling substantive law in favor of the
plaintiff.
Id. at 217 (quoting Batoff, 977 F.2d at 852). In other words, joinder will not be considered
fraudulent unless the claims against the non-diverse party can be deemed “’wholly insubstantial
and frivolous’[.]” Id. at 218.
The court’s inquiry into a fraudulent joinder claim is less demanding than the inquiry
undertaken in ruling on a motion to dismiss under Rule 12(b)(6)—“simply because a claim
against a party may ultimately be dismissed for failure to state a claim does not necessarily mean
that the party was fraudulently joined.” In re Diet Drugs Prods. Liab. Litig., 294 F.Supp. 2d
667, 673 (E.D.Pa. 2003) (citing Batoff, 977 F.2d at 852) (other citation omitted). “[T]he same
principles of fraudulent joinder apply where a plaintiff is improperly joined with another plaintiff
to defeat diversity jurisdiction.” Id. (citing Tapscott v. M.S. Dealer Service Corp., 77 F.3d 1353,
1360 (11th Cir.1996) (overruled on other grounds); In re Benjamin Moore & Co., 309 F.3d 296,
298 (5th Cir.2002); In re Diet Drugs Prods. Liab. Litig., Civ. A. No. 98-20478, 1203, 1999 WL
554584 (E.D.Pa. July 16, 1999)).

8

III.

DISCUSSION
A.

Standing to Bring Suit as Third Party Beneficiary

In support of their motion to remand, Plaintiffs submit that Mylan Institutional has
standing to bring this lawsuit as it is an intended third party beneficiary of the Consulting
Agreement.

The Consulting Agreement contains a choice of law provision designating

Pennsylvania law as the governing law.
The Pennsylvania Supreme Court has delineated two tests for determining whether a
party attains third party beneficiary status. Under the first test, “in order for a third party
beneficiary to have standing to recover on a contract, both contracting parties must have
expressed an intention that the third party be a beneficiary, and that intention must have
affirmatively appeared in the contract itself.” Scarpitti v. Weborg, 609 A.2d 147, 149 (Pa. 1992)
(citing Spires v. Hanover Fire Ins. Co., 70 A.2d 828, 830-31 (Pa. 1950)). Subsequently, the
supreme court carved out an exception to the Spires rule in Guy v. Liederbach, 459 A.2d 744
(1983),4 which comprises the second test. Scarpitti, 609 A.2d at 149. In so doing, the supreme
court adopted the Restatement (Second) of Contracts, §302 (1979), which provides:
Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee, a
beneficiary of a promise is an intended beneficiary if recognition
of a right to performance in the beneficiary is appropriate to
effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of
the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to
give the beneficiary the benefit of the promised performance.
4

In Guy, the Pennsylvania Supreme Court overruled Spires to the extent that it stated the exclusive test
for third party beneficiaries. Guy v. Liederbach, 459 A.2d 744, 751 (Pa. 1983).
9

(2) An incidental beneficiary is a beneficiary who is not an
intended beneficiary.

Id. See also Guy, 459 A.2d at 751; Scarpitti, 609 A.2d at 150. Thus, under the Restatement test,
courts must conduct a two-part inquiry for determining whether a party can be designated as an
intended third party beneficiary:
(1) the recognition of the beneficiary's right must be “appropriate
to effectuate the intention of the parties,” and (2) the performance
must “satisfy an obligation of the promisee to pay money to the
beneficiary” or “the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the promised
performance.”
Guy, 459 A.2d at 751; Scarpitti, 609 A.2d at 150 (quoting Guy, supra). Part one of the inquiry
addresses standing and vests discretion in the court to ascertain whether recognition of third
party beneficiary status would be appropriate. Id. The second part of the inquiry identifies the
two types of claimants who may be intended as third party beneficiaries. Id.
The Scarpitti court rejected the argument that Guy was intended to apply only to cases
sufficiently similar on the facts, and held that so long as the requirements of §302 have been met,
nothing in Guy precluded the plaintiffs-appellees from being included in the narrow class of third
party beneficiaries envisioned by the supreme court. 609 A.2d at 150. The supreme court in
Scarpitti thus summarized the law on third party beneficiaries in Pennsylvania:
Accordingly, we hold that a party becomes a third party
beneficiary only where both parties to the contract express an
intention to benefit the third party in the contract itself, Spires,
supra, unless, the circumstances are so compelling that recognition
of the beneficiary's right is appropriate to effectuate the intention
of the parties, and the performance satisfies an obligation of the
promisee to pay money to the beneficiary or the circumstances
indicate that the promisee intends to give the beneficiary the
benefit of the promised performance. Guy, supra.
10

Id. at 150-51. Thus, even where, as here, the agreement does not expressly provide that the third
party is intended to be a beneficiary, under the Restatement test enunciated in Guy, a party may
still be a third party beneficiary. However, as the superior court pointed out in Burks v. Federal
Insurance Company, “Guy did not alter the requirement that in order for one to achieve third
party beneficiary status, that party must show that both parties to the contract so intended, and
that such intent was within the parties' contemplation at the time the contract was formed.”
Burks v. Federal Ins. Co., 883 A.2d 1086, 1088 (Pa. Super. Ct. 2005) (emphasis in original).
In the case at bar, Plaintiffs submit that under either the Spires standard or the more
lenient Restatement standard, they have more than a “reasonable basis in fact or colorable
ground supporting the claim” that Mylan Institutional has standing to sue Zorich for breach of
contract. In support, Plaintiffs contend that the expressed intent of the parties (to benefit Mylan
Institutional) is demonstrated through the references in the Consulting Agreement to (1) Mylan’s
acquisition of Bioniche, which is made more significant by the fact that Zorich was Bioniche’s
President of North America operations and Bioniche would later become Mylan Institutional; (2)
Zorich’s duties vis a vis the “Mylan Companies” (i.e., Mylan and its affiliate companies and
subsidiaries); and (3) to the “Mylan Companies” in the confidentiality, non-compete and nonsolicitation provisions of the Consulting Agreement. (Pls.’ Br. in Supp. Mot. to Remand at 9-11,
ECF No. 4.) Thus, according to Plaintiffs, by the language in the Consulting Agreement, which
imposes obligations on Zorich to the Mylan Companies and which affords the Mylan Companies
protection against unfair competition, Mylan and Zorich clearly indicated their mutual intention

11

that Mylan’s affiliates, including Mylan Institutional,5 benefit from the Consulting Agreement.
Therefore, Plaintiffs submit that under Pennsylvania law, Mylan Institutional is a proper party to
this lawsuit.
In response, Zorich argues that Mylan Institutional lacks standing to bring a breach of
contract claim based on the Consulting Agreement because it does not qualify as a third party
beneficiary under either the Spires or Restatement standard. Zorich devotes a good portion of his
brief arguing why Mylan Institutional does not qualify as a third party beneficiary under the
Spires test. The Court agrees with Zorich that, under the Spires test, Mylan Institution does not
qualify as a third party beneficiary. Neither Bioniche nor any successor entity6 is expressly
designated as a third party beneficiary in the Consulting Agreement.
However, the Court disagrees with Zorich’s conclusion that Mylan Institutional also fails
to qualify as a third party beneficiary under the Restatement test officially adopted in Scarpitti.
In support of his position, Zorich argues that there are no unique or compelling circumstances
here that would justify recognizing Mylan Institutional as a third party beneficiary of the
Consulting Agreement. Zorich contends that Mylan and Zorich were the only parties to the
Consulting Agreement and Mylan, as signatory on the Consulting Agreement, clearly derived the
benefits of Zorich’s obligations under the agreement and is attempting to enforce the Consulting
Agreement by way of this action.
5

Plaintiffs maintain that Mylan Institutional is the current name of what was then still known as
Bioniche, and Mylan’s acquisition of Bioniche is specifically referenced in the recitals of the Consulting
Agreement. (Pls.’ Br. in Supp. Mot. to Remand at 11, ECF No. 4.)
6
Zorich further argues that Mylan Institutional is not a third party beneficiary because it is a successor
entity of Bioniche and did not even exist at the time Zorich entered into the Consulting Agreement.
While this argument has some appeal at first blush, it misses the mark. The fact that Mylan Institutional
did not exist at the time the Consulting Agreement was executed is irrelevant. Rather, what is relevant is
whether the agreement expressly states that Bioniche or any successor entity be designated as a third
party beneficiary. Because the agreement fails to contain any such language, the Spires test has not been
met.
12

As a preliminary matter, the Court finds that Zorich has misstated the Restatement test.
Plaintiffs need not prove that “unique or compelling circumstances that would justify
recognizing Mylan Institutional as a third party beneficiary.” Rather, under the Restatement test,
Plaintiffs must show that recognition of Mylan Institutional’s right to performance under the
Consulting Agreement is appropriate to effectuate the intent of the parties, and the circumstances
indicate that Mylan (as promisee) intended to give Mylan Institutional (beneficiary) the benefit
of Zorich’s promised performance. Sovereign Bank v. BJ’s Wholesale Club, Inc., 533 F.3d 162,
168 (3d Cir. 2008) (applying Pennsylvania law and citing Restatement (Second) of Contracts,
§302). Applying this test to the case at bar, the Court finds that Mylan Institutional is an
intended beneficiary of the Consulting Agreement between Mylan and Zorich.
The following circumstances compel this conclusion. First, the Consulting Agreement
clearly contemplated that Zorich’s consulting services were necessary for the acquisition of
Bioniche. In this regard, the Consulting Agreement expressly provides that the basis for the
agreement is the intended acquisition of Bioniche by Mylan “or one of its affiliates.”
(Consulting Agmt., Recitals at 1, ECF No. 1-2 at 18.) In addition, the Consulting Agreement
provides that Mylan’s agreement to retain Zorich was contingent upon the consummation of the
acquisition of Bioniche, referred to as the “Closing,” and was to commence on the date of the
Closing. (Consulting Agmt., ¶1 at 1, ECF No. 1-2 at 18.)
Second, the Consulting Agreement also contemplated that Zorich’s performance under
the agreement would benefit the “Mylan Companies,” which includes Mylan Institutional, the
successor entity of Bioniche. In this regard, the Consulting Agreement expressly provides that
Zorch agreed to devote his full working time and attention to the business and affairs of Mylan
“and its affiliate companies and subsidiaries (collectively, the ‘Mylan Companies’)[.]” (Id.) In
13

performing his duties as Consultant under the Consulting Agreement, Zorich agreed to “serve
[Mylan] faithfully and to the best of [his] ability, and use [his] best efforts to promote the
interests of the Mylan Companies.” (Id.) Zorich also agreed that for 24 months after the
termination of the Consulting Agreement, he would not become employed by a business that
competes with the business or products of any of the Mylan Companies, nor would he solicit any
clients or employees of the Mylan Companies. (Id. at ¶5(a)-(c) at 4-5, ECF No. 1-2 at 21-22.)
In addition to the Consulting Agreement, factual allegations in the Complaint support the
conclusion that the contracting parties intended that Bioniche and/or its successor entity would
be the primary beneficiary of the performance of the Consulting Agreement. Specifically, the
Complaint alleges that Mylan was induced to acquire Bioniche based, in part, on Zorich’s
agreement to enter into the Consulting Agreement. (Compl., ¶11.) The Complaint further
asserts that Zorich was Bioniche’s President of North American operations at the time of its
acquisition by Mylan. (Id.) As part of the SPA, Zorich agreed to enter into the Consulting
Agreement with Mylan. (Id.) Mylan Institutional, a subsidiary of Mylan, was formed postacquisition to operate the business of Bioniche. (Id. at ¶¶10, 33.) The majority of Zorich’s
consulting duties under the Consulting Agreement involved work for Mylan Institutional. (Id. at
¶33.) Moreover, although not asserted in the Complaint, Plaintiffs and Zorich refer to Mylan
Institutional as the “successor entity” to Bioniche in their motions and/or briefs. (See, e.g.,
Def.’s Resp. to Pls.’ Mot. to Remand at 6, ECF No. 8; Pls.’ Reply Br. at 4, ECF No. 13.)
These facts, when coupled with the above identified provisions in the Consulting
Agreement, indicate that at the time of contracting, the parties intended that Bioniche, or its
successor entity, benefit from the performance of the Consulting Agreement. Zorich’s promised

14

performance was necessary to operate the business of Bioniche post-acquisition and of Mylan
Institutional, as the successor entity.
The supreme court’s decision in Scarpitti supports this conclusion.

In Scarpitti,

subdivision homeowners sued the architect retained by the subdivision developer to review and
approve construction plans, seeking damages for his arbitrary enforcement of subdivision
restrictions. The trial court dismissed the owners' complaint. Affirming the superior court's
reversal, the supreme court held that the homeowners had a cause of action as intended thirdparty beneficiaries of the implied contract between architect and developer. 609 A.2d at 151.
With regard to the first prong of the Restatement test, the supreme court found that recognition
of a right to uniform enforcement of the restrictions in the homeowners was appropriate to
effectuate the intent of the parties, even though the agreement between the architect and
developer did not expressly manifest an intent to benefit the subdivision homeowners. Id. In so
holding, the supreme court reasoned that the purpose of the contract between the architect and
subdivision developer was to make the lots more attractive to prospective purchasers by
requiring compliance with the restricted covenants. Consequently, the court found the third
party beneficiary relationship was within the contemplation of the contracting parties at the time
the contract was entered into. In this regard, the court further found that the future homeowners
had the greatest interest in uniform enforcement of the restrictions and primarily benefited from
the establishment of the vehicle to enforce the restrictions, i.e., the developer’s retention of the
architect to review the building plans of prospective lot owners. The court thus concluded that
the homeowners reasonably relied upon the promise as manifesting an intention to confer a right
on them. Id.

15

Similarly here, at the time the Consulting Agreement was entered into, Mylan and Zorich
contemplated that Bioniche and/or its successor entity would be an intended beneficiary to the
Consulting Agreement, because the agreement was predicated upon Mylan’s acquisition of
Bioniche and Zorich’s promise to provide consulting services to the business entity or entities
within the Mylan Companies which operated the business of Bioniche post-acquisition. As such,
Bioniche and/or its successor entity had the greatest interest in Zorich’s performance of his
duties under the agreement and primarily benefited from Zorich’s promise to faithfully provide
his consulting services to the Mylan Companies.

Therefore, it was reasonable for Mylan

Institutional to rely upon Zorich’s promise as manifesting an intention to confer a right of
performance on Mylan Institutional.

Accordingly, the circumstances here are at least as

compelling as those in Scarpitti such that this Court has no trouble concluding that recognition of
Mylan Institutional’s right to performance under the Consulting Agreement is appropriate to
effectuate the intent of the parties.
As to the second prong of the Restatement test, the Scarpitti court held that by
establishing a vehicle for enforcing the restrictions, the architect and developer clearly intended
to benefit the homeowners who purchased lots in the subdivision at the time they entered into the
contract. In reaching this conclusion, the court noted that the architect promised to enforce the
restrictions, which carried out the developer’s intent that the homeowners benefit from the
architect’s performance. Id. Of particular relevance here, the court opined that “[a]lthough not
specifically named, [the homeowners] were part of a limited class of persons intended to benefit
from the agreement between [the architect] and [the developer], thus satisfying the second prong
of Guy and subsection (b) of §302 Restatement (Second) of Contracts (1979).” Id. at 151.

16

Likewise in the case at bar, by establishing the Consulting Agreement, Mylan and Zorich
clearly intended to benefit the business entity or entities within the Mylan Companies which
operated the business of Bioniche post-acquisition. One such entity is Mylan Institutional. Even
though Mylan Institutional was not named in the Consulting Agreement, as it did not yet exist, it
was part of a limited class of companies intended to benefit from the agreement between Mylan
and Zorich. Scarpitti, 609 A.2d at 151; cf. Sovereign Bank, 533 F.3d at 172-73 (holding that
issuer of VISA bank card was intended beneficiary of contract between VISA and bank wherein
bank promised VISA that it would ensure that merchants complied with the provision of the
member agreement prohibiting merchants from retaining cardholder information. Court of
appeals noted that the fact that VISA intended to benefit several members or classes of members
did not negate the possibility that it intended to benefit individual issuers such as plaintiff.)
Therefore, under Scarpitti, the second prong of the Restatement test has been satisfied here.
Zorich argues that just because he owed obligations to the “Mylan Companies” does not
mean that each and every one of Mylan’s affiliates is a third-party beneficiary of the Consulting
Agreement. In support, Zorich cites Marsteller Cmty. Water Auth. v. P. J. Lehman Eng’rs, 605
A.2d 413, 416 (Pa. Super. Ct. 1992), for the proposition that “the fact that the obligee knows that
he will perform the contracted-for services for a third party is not, in itself, sufficient to vest the
third party with standing to sue on the contract.”

However, Zorich’s reliance on Marsteller is

misplaced for several reasons. First, the superior court applied the Spires test in ascertaining
whether Marsteller had standing to bring suit as a third party beneficiary. The superior court
never even mentioned the supreme court’s decision in Guy, and Scarpitti had not yet been
decided at the time of the superior court’s decision in Marsteller. Second, the language cited by
Zorich is taken out of context, as a close review of the opinion reveals that the superior court was
17

distinguishing the Spires test from the situation in Manor Junior Coll. v. Kaller’s Inc., 507 A.2d
1245 (Pa. Super. Ct. 1986), in which the superior court found that a third party lacked standing to
bring a cause of action for breach of a verbal contract. Marsteller, 605 A.2d at 416. Finally, the
superior court ultimately concluded in Marsteller that based on the averments in the complaint
and numerous references to Marsteller in the agreement and in a separate report that was integral
to the agreement, Marsteller was an intended beneficiary of the contract. Id. Thus, the superior
court’s decision in Marsteller actually favors Plaintiffs’ position here, not Zorich’s.
Zorich further argues that the fact that Mylan Institutional is not named in the Consulting
Agreement or was not in existence at the time the agreement was executed supports the
conclusion that it was not an intended beneficiary. The Court disagrees for the reason set forth
above in its analysis of the similarities between this case and Scarpitti—even though Mylan
Institutional was not named in the Consulting Agreement, as it did not yet exist, it was part of a
limited class of Mylan Companies intended to benefit from the agreement between Mylan and
Zorich. Scarpitti, 609 A.2d at 151; cf. Sovereign Bank, 533 F.3d at 172-73. Zorich and Mylan
anticipated that there would be a successor entity to Bioniche at the time of contracting, as
evidenced by the statement in the Recitals section to the effect that Mylan or one of its affiliates
would acquire Bioniche, and (2) by the use of the term Mylan Companies.7 Thus, based on
Scarpitti, the Court finds that although the name of the successor entity was not known at the
time of contracting, that does not preclude the Court from finding that Mylan Institutional is an
intended beneficiary of the Consulting Agreement.

The fact that the parties chose to use the term “Mylan Companies” rather than identifying specific
Mylan affiliates by name indicates that the parties intended that the Consulting Agreement would benefit
not only Mylan affiliates in existence at the time of contracting, but also, other Mylan affiliates that would
come into existence after the contract was entered into.
7

18

B.

Fraudulent Joinder

Essentially, Zorich argues that because Mylan Institutional lacks standing to sue for
breach of the Consulting Agreement, that claim is “wholly insubstantial and frivolous.” Thus,
Zorich contends that Mylan Institutional was fraudulently joined as a plaintiff in this lawsuit
solely to defeat diversity jurisdiction. However, since this Court has determined that Mylan
Institutional does have standing to sue for breach of contract as a third party beneficiary of the
Consulting Agreement, Zorich’s argument must fail.
In further support of his fraudulent joinder argument, Zorich submits that there is no
apparent, legitimate reason why Mylan Institutional was named as a party to this action because
the signatory to the agreement, Mylan, Inc., is listed as a party/plaintiff, both Plaintiffs are
represented by the same counsel, allege identical facts and breach of contract claims against
Zorich, and Mylan Institutional is not seeking to enforce any right or any relief that is separate or
distinct from what Mylan seeks. In fact, according to Zorich, the only consequence of adding
Mylan Institutional as a plaintiff is it operates to defeat diversity jurisdiction.
Plaintiffs respond that Mylan Institutional is a party to this lawsuit for several reasons.
First, during the term of the Consulting Agreement, Zorich provided consulting services
exclusively to Mylan Institutional—Bioniche’s corporate successor, which continued the
injectable pharmaceutical business of Bioniche post-acquisition. Second, Zorich, as president
and chief executive officer of W.G. Critical Care, is unfairly competing with Mylan Institutional
and is in a position to utilize Mylan Institutional’s confidential information and to its customers.
Third, Bohling, an employee of Mylan Institutional whom Zorich recruited to work at W.G.
Critical Care, allegedly downloaded approximately 40 gigabytes of Mylan Institutional’s
business information to use for the benefit of W.G. Critical Care. Thus, Plaintiffs maintain that
19

Mylan Institutional is a party to this lawsuit to protect its own vital business interests which
Zorich and Bohling have endangered by virtue of Zorich’s unlawful competition with Mylan
Institutional. (Pls.’ Reply Br. at 4, ECF No. 13 at 4.)
Also Plaintiffs argue in response that the fact that Mylan and Mylan Institutional are
asserting the same claim does not mean that one or both parties are improper plaintiffs or have
been fraudulently joined. The Court agrees with Plaintiffs. Cases are routinely brought by
multiple plaintiffs asserting identical claims against one or more defendants. The Court is not
aware of any rule or case law authority that would preclude this practice, and Zorich fails to
point to any such authority.
Plaintiffs next point out the flaw in Zorich’s argument that based on their reasoning,
Mylan would be able to defeat diversity jurisdiction “by adding any one of its affiliates to a
complaint depending on where the defendant resided.” (Def.’s Resp. to Mot. to Remand at 5 n.
1, ECF No. 8.) Zorich’s argument has not merit as it ignores the additional requirement that in
order to survive a motion to dismiss under Rule 12(b)(6), a plaintiff must have a factual and legal
basis for its claim. Here, the Complaint does not name just any Mylan affiliate, but rather,
names Mylan Institutional, which has standing to assert the breach of contract claim as a third
party beneficiary. In addition, the Complaint contains allegations setting forth a factual and legal
basis for Mylan Institutional’s breach of contract claim against Zorich.
Finally, Plaintiffs counter that Mylan Institutional’s claim is not insubstantial or
frivolous, as Zorich’s alleged breaches of the Consulting Agreement caused immediate and
irreparable harm to Mylan Institutional, which was formed to carry on the injectable
pharmaceutical business of Bioniche post-acquisition. Plaintiffs allege that the confidentiality of
Mylan Institutional’s proprietary business information was compromised by Zorich’s actions and
20

resulted in a loss of Mylan Institutional’s customers and customer goodwill. The Court agrees
with Plaintiffs that Mylan Institutional’s breach of contract claim is not wholly insubstantial or
frivolous.

As noted above, the Complaint sets forth a factual and legal basis for Mylan

Institutional’s breach of contract claim against Zorich. Therefore, the Court cannot find that “no
reasonable basis in fact or colorable ground supporting [Mylan Institutional’s] claim” exists here.
Because Zorich has failed to prove that Mylan Institutional’s claim against him is
“wholly insubstantial and frivolous,” he has not met his burden of showing that Mylan
Institutional was fraudulently joined as a plaintiff in this lawsuit solely to defeat this Court’s
diversity jurisdiction. Accordingly, this Court lacks subject matter jurisdiction over this action
and will order that this case be remanded to state court.
IV.

CONCLUSION
For the foregoing reasons, the Court finds that remand is appropriate because Defendant

has failed to prove that the Plaintiffs fraudulently joined Mylan Institutional in order to preclude
diversity of citizenship. An appropriate order will follow.

Dated: February 16, 2012

BY THE COURT:

________________________________
LISA PUPO LENIHAN
Chief United States Magistrate Judge
cc:

All Counsel of Record
Via Electronic Mail

21