Delaware Business Litigation Report

Federal Court Denies Motion to Dismiss For Failure To Join Indispensable Party Pending Discovery On Agency Issue But Dismisses Common Law Counts As Merged In Trade Secret Claim

Ethypharm S.A. France v. Bentley Pharmaceuticals, Inc., 388 F.Supp.2d 426 (D.Del. 2005). This action was brought by Ethypharm, a French pharmaceutical company and its Spanish subsidiary alleging fraud, violation of the Delaware Uniform Trade Secret Act ("DUTSA"), unjust enrichment and intentional interference with ongoing and prospective business relationships. Defendant Bentley Pharmaceuticals, Inc., a Delaware corporation, filed a Motion To Dismiss For Failure To Join An Indispensable Party, namely Belmac, a Spanish company, under Fed. R. Civ. P. 19(a) and (b) and a motion to dismiss the various common law claims. The Court treated the motions as that of summary judgment and held that: (1) the defendant's subsidiary Spanish company, Belmac, was an indispensable party; (2) DUTSA preempted the unjust enrichment and fraud claims; and (3) the business tort claims could exist independent of the misappropriation claim because they were not preempted by DUTSA. Plaintiff, a French-based corporation and its Spanish subsidiary, Ethypharm S.A., Spain, organized under the laws of Spain, filed this suit against Defendant Bentley alleging the above claims. The Court had jurisdiction pursuant to 28 U.S.C. §1332. Plaintiffs alleged that they had entered into an agreement with Defendant Bentley through its agent, Belmac, a wholly owned Spanish subsidiary of Bentley, in accordance with which plaintiffs permitted access to their intellectual property and trade secrets related to the production, manufacture and sale of primarily Omeprazole, a pharmaceutical product and other products. This agreement permitted access to process know-how, specifications, trade secrets and other such technical assistance, procedures, studies to obtain compliance with governing GMP manufacturing regulations for the products and know-how and trade secrets related to marketing and customer contacts. In its motion to dismiss, defendant argued that the agreement was completely negotiated by Belmac and therefore, Belmac was not defendant's agent and accordingly, no duties ran to defendant under the agreements although Belmac manufactured Omeprazole for plaintiffs for a decade between 1992 and 2002. Plaintiff alleged that both Bentley and Belmac had conceded that the technology was proprietary to Ethypharm and that Bentley had been misleading the public and its shareholders that it, Bentley, held the proprietary interest in all the above, not Ethypharm. Defendant claimed that Belmac had discovered that plaintiff was not protected by a process patent and therefore its development of a process did not violate plaintiff's rights. The Court observed that to avoid dismissal, the plaintiffs had asserted an agency theory to establish that Belmac was an agent of Bentley but claimed that Belmac need not be joined as a necessary party. The Court found that Belmac was a necessary and indispensable party because almost all interactions were between Belmac and plaintiff and that Belmac would need to present witnesses and information for a determination of what acts were actually performed and by whom and if they were wrongful. The Court further found that because the relationship between defendant and Belmac was unclear, the quantum of control exercised by defendant over Belmac was also not clear. The defendant attacked plaintiff's agency claim as insufficiently pleaded. This was rejected by the Court under the notice pleading standard requiring only a short plain statement sufficient to place the opposing party on notice of the claim. Observing that plaintiffs' were entitled to discovery on the issue of control, the Court denied defendant's motion to dismiss without prejudice, observing that it would be renewable if after discovery, it became clear that defendant could not be liable as a joint tortfeasor or under the agency theory. With regard to the common law fraud and unjust enrichment claims, the court held that they were preempted by the DUTSA because it "displaces conflicting tort, restitutionary and other" claims providing remedies for misappropriation of trade secrets under 6 Del. C. § 2007(a) and were therefore "founded on allegations of trade secrets violations." The Court held that because the fraud count alleged misrepresentation as an improper manner of obtaining trade secrets, it was absorbed in 6 Del. C. § 2001 of DUTSA. Similarly, the allegations relating to the unjust enrichment claim mirrored DUTSA requirements and was based on the same facts that supported the misappropriation of trade secrets claim. The Court declined to dismiss the business tort claims of interference with ongoing and prospective business relationships because the facts were not grounded entirely on the DUTSA claim and they were therefore not preempted. The Court however did observe that that once the claims were developed and it was found that they were grounded on the same facts as the misappropriation claim, they too could be displaced by DUTSA. Authored by: Raj Srivatsan 302 888 6831 rsrivatsan@morrisjames.com Share