Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

PENTECH PHARMACEUTICALS, INC. v. PAR PHARMACEUTICAL

October 20, 2004.

PENTECH PHARMACEUTICALS, INC., an Illinois corporation, Plaintiff,
v.
PAR PHARMACEUTICAL, INC., a New Jersey corporation, Defendant.



The opinion of the court was delivered by: MARK FILIP, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Pentech Pharmaceuticals, Inc. ("Plaintiff" or "Pentech") is suing Defendant Par Pharmaceuticals, Inc. ("Defendant" or "Par"), alleging breach of contract (Count I); seeking a declaratory judgment as to the duties created under the contract (Count II); asserting a breach of fiduciary duty (Count III); and requesting an equitable accounting (Count IV). This case is before the Court on Defendant's Motion to Dismiss Counts III and IV of Plaintiff's First Amended Complaint ("Motion") pursuant to Federal Rule of Civil Procedure 12(b)(6). (D.E. 23)*fn1 As explained below, Defendant's Motion is denied.

BACKGROUND FACTS*fn2

  In March of 2000, Pentech filed an Abbreviated New Drug Application (an "ANDA") with the FDA for paroxetine hydrochloride ("paroxetine"), a chemical compound. (D.E. 18 ¶¶ 10-11.) Pentech believed paroxetine could be manufactured and sold without infringing on SmithKline Beecham's ("SmithKline") patent on its own paroxetine product, the drug Paxil. (Id. ¶ 10.) Nevertheless, in May of 2000, SmithKline sued Pentech, alleging that Pentech's new product infringed its patent for Paxil. (Id. ¶¶ 12-13.) Because of this litigation, Pentech incurred considerable costs and needed to fund its continued defense of the case. (Id. ¶ 15.) Consequently, in November of 2001, Pentech and Par entered into an agreement "to alleviate Pentech's rising costs to defend" the litigation with SmithKline. (Id. ¶ 16) This agreement provided that Par would pay certain amounts to Pentech to continue Pentech's defense in its lawsuit again SmithKline (100 percent of all legal fees under $2,000,000 and 70 percent thereafter of legal fees over $2,000,000), and in return, upon FDA approval, Par would be the exclusive distributor of Pentech's paroxetine product. (Id. ¶¶ 16-20). The agreement provided that Par and Pentech would "share ultimate decision making authority" in the litigation with SmithKline if the legal fees and expenses exceeded $2,000,000, but that Pentech would have "ultimate decision making authority" for the litigation if expenses remained below $2,000,000. (Supply and Marketing Agreement, § 2.2, attached to the First Amended Complaint as Exhibit A) In return, Par and Pentech agreed to split the profits from the distribution of Pentech's paroxetine product. (D.E. 18 ¶ 19.)

  In 2002, apparently as the cost of the ongoing litigation and other funding needs continued to grow, Par and Pentech executed an amendment to the agreement. Section II.A. of the amended agreement replaced Section 2.2 of the original agreement in its entirety. (Id., Ex. B at A-2.) Relevant to this opinion, Section II.A. provided that "Par shall have sole and exclusive control" of the litigation with SmithKline and that "Par will be fully responsible for all reasonable legal fees and expenses incurred by Pentech after the date of this Agreement resulting directly from" the SmithKline litigation. (D.E. 18 ¶¶ 22-24.) Furthermore, the amended agreement provided that in the event of a settlement, Par will first be reimbursed for all of its direct costs relating to the development and marketing of paroxetine," and that any remaining amounts would be "divided 60% to Par and 40% to Pentech." (Id. ¶ 26.)

  Subsequently, Par and its counsel, on Pentech's behalf, entered into settlement negotiations with SmithKline. (Id. ¶ 28.) The resulting settlement agreement included an arrangement whereby SmithKline would manufacture and deliver a generic, tablet form of Paxil to Par at no cost, receiving only royalties based on the product's sales. (Id. ¶¶ 34-35.) At the same time, Par entered into an agreement with an affiliate of SmithKline that allowed Par to market the generic Paxil in certain locations under certain conditions. (Id. ¶ 29.) Par allegedly has profited considerably from this arrangement but has refused to account for its sales or to remit to Pentech its previously agreed upon share of any profit. (Id. ¶¶ 37-38.)

  Pentech sued Par under a number of legal theories. In current relevant part, Pentech alleges that Par had a fiduciary duty to Pentech in connection with the defense and settlement of the litigation with SmithKline. (Id. ¶ 58.) Par allegedly breached this duty by failing, inter alia, to disclose any conflict Par had with Pentech, to advise Pentech to obtain its own counsel, and to advise Pentech that it intended to take the position that the proceeds of the SmithKline paroxetine sold by Par would not be amounts "out of' the settlement as contemplated in the Par-Pentech agreement. (Id. ¶ 58.)

  LEGAL STANDARD

  A Rule 12(b)(6) motion to dismiss challenges the sufficiency of the complaint for "failure to state a claim upon which relief can be granted." Fed.R. Civ. P. 12(b)(6); accord Johnson v. Rivera, 272 F.3d 519, 520-21 (7th Cir. 2001). In ruling on the motion, the Court accepts all well-pleaded facts alleged in the complaint as true and accords the plaintiff every reasonable inference from those facts. See McLeod v. Arrow Marine Transp., Inc., 258 F.3d 608, 614 (7th Cir. 2001). "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Lee v. City of Chicago, 330 F.3d 456, 459 (7th Cir. 2003). Dismissal is appropriate only when "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations" of the complaint. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

  DISCUSSION

  I. Count III — Breach of Fiduciary Duty

  The original agreement between Pentech and Par states that the terms of the contract are to be governed and construed by the laws of New York. As the fiduciary duty claim set forth in Pentech's complaint arises from the duties relating to the parties' litigation agreements, New York fiduciary duty law must be applied to the facts of this case.

  Par argues, quite simply, that no fiduciary relationship existed between Pentech and Par. To succeed on a claim for breach of fiduciary duty in New York, Pentech must prove three elements: (1) a fiduciary duty between the parties; (2) defendant's breach of that duty; and (3) damages suffered by the plaintiff which were proximately caused by the breach. See Kidz Cloz, Inc. v. Officially for Kids, Inc., 2001 U.S. Dist. LEXIS 1135, *11 (S.D.N.Y. 2001). A fiduciary duty generally must arise out of a "relationship of confidence, trust, or superior knowledge or control, and may exist where one entity `is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.'" BBS Power Mod, Inc. v. Prestolite Elec., Inc., 71 F. Supp. 2d 194, 203 (W.D.N.Y. 1999) (quoting Mandelblatt v. Devon Stores, Inc., 521 N.Y.S.2d 672, 676 (N.Y.App. Div. 1987)). A fiduciary duty arises between parties only in those circumstances where there exists a relationship that constitutes something more than an "arms length contractual arrangement." Valjean Mfg., Inc. v. Michael Werdiger, Inc., 2004 U.S. Dist. LEXIS 17580, *11 (S.D.N.Y. 2004). In other words, a fiduciary relationship exists under New York law "from the assumption of control and responsibility . . . and is founded upon trust reposed by one party in the integrity and fidelity of another." Id. (quoting Beneficial Commercial Corp. v. Murray Glick Datsun. Inc., 601 F. Supp. 770, 772 (S.D.N.Y. 1985)).

  Generally, New York courts are loath to recognize the existence of a fiduciary relationship between contracting sophisticated parties to a business transaction where the relationship is not created explicitly in a contract. See Compania Sud-American de Vapores v. IBJ Schroeder Bank & Trust Co., 785 F. Supp. 411, 426 (S.D.N.Y. 1992) (collecting cases). This is because parties in an average commercial transaction deal at arms length, where "no relation of confidence or trust sufficient to find the existence of a fiduciary relationship will arise" absent "extraordinary" additional factors. Id. Those factors generally relate to "the superior position of one party (typically the defendant), such that the plaintiff must place its trust and confidence in the defendant." BBS Power Mod, Inc., 71 F. Supp. 2d at 203; accord, e.g., Calvin Klein Trademark Trust v. Wachner, 123 F. Supp. 2d 731, 734 (S.D.N.Y. 2000) ("special factors . . . [may] create fiduciary relationships between contracting commercial parties, such as, for example, when one party's superior position or superior access to confidential information is so great as virtually to require the other party to repose trust and confidence in the first party."). Under New York law, the existence of a fiduciary duty "depends on the facts of a particular relationship." Olshansky v. Sutton, 2001 U.S. Dist. LEXIS 945, *14 (S.D.N.Y. 2001) (collecting cases). As a practical matter, given the generous pleading standard set forth in Fed.R. Civ. P. 8, the requisite fact-intensive analysis necessary for determining whether a fiduciary relationship exists means that a claim alleging the existence of a fiduciary duty usually is not subject to dismissal in a 12(b)(6) motion but instead is evaluated at later stages of the litigation. See, e.g., Boley v. Pineloch Assoc., Ltd., 700 F. Supp. 673, 680-81 (S.D.N.Y. 1988) ("Usually, therefore, a claim alleging the existence of a fiduciary duty is not ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.