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Medrad, Inc. v. Sprite Development

September 8, 2010

MEDRAD, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
SPRITE DEVELOPMENT, LLC, SPRITE SOLUTIONS, LLC, HANS MISCHE, LLC, ROBERT BECK, LLC, MINNESOTA CORPORATIONS, HANS MISCHE, INDIVIDUALLY, AND ROBERT BECK, INDIVIDUALLY, DEFENDANTS.



The opinion of the court was delivered by: Judge Joan H. Lefkow

OPINION AND ORDER

Medrad, Inc. ("Medrad") brought suit against Sprite Development, LLC ("Development"); Sprite Solutions, LLC ("Solutions"); Hans Mische, LLC; Robert Beck, LLC; and Hans Mische and Robert Beck (collectively, "defendants").*fn1 In Count I, Medrad seeks a judgment declaring that it validly terminated contracts between it and the defendants and that it has no further liability under those contracts. Count II alleges that Hans Mische, LLC, breached its contract by not assigning intellectual property rights and seeks specific performance. Defendants have moved to dismiss for lack of personal jurisdiction and improper venue under Federal Rules of Civil Procedure 12(b)(2) and (3). In the alternative, defendants ask this court to stay the case pending the resolution of a companion case filed in the United States District Court for the District of Minnesota. For the following reasons, defendants' motion [#30] is granted in part and denied in part.

BACKGROUND*fn2

In 2004, Medrad and Solutions started negotiating a contract to develop medical procedures and technology based on Solutions's intellectual property. Second Am. Compl. ¶ 16. On July 26, 2005, the parties signed the "Joint Development Agreement" ("development agreement"), with Mische and Beck signing on behalf of Solutions. Id. ¶ 18. Under the agreement, Solutions agreed to license its intellectual property to Medrad, and Medrad agreed to compensate Solutions and develop products for its intellectual property. Id. By way of compensation, Medrad agreed to pay Sprite an initial licensing fee of $250,000 and percentages of sales, with a minimum annual payment of $100,000. Id. In addition, Medrad agreed to make payments in connection with specific development milestones. Id. On August 1, 2005, Medrad signed consulting agreements with Hans Mische, LLC and Robert Beck, LLC. Id. ¶ 19. Under these contracts, Mische and Beck agreed to provide consulting services in connection with the development agreement. Id.

Medrad then spent more than two years and two million dollars researching and developing products for Solutions's intellectual property with some initial success. Id. ¶¶ 20-23, 26. On February 11, 2008, Solutions notified Medrad that Medrad had failed to make a $200,000 payment in connection with a development milestone. Id. ¶ 24. Medrad responded that it had not yet successfully reached that milestone, and therefore, the corresponding payment was not triggered. Id. ¶ 25. On April 14, 2008, after unsuccessful negotiations and research trials, Medrad sent Solutions notice that it was terminating the development agreement.*fn3 Id. ¶ 26. The termination became effective on July 14, 2008. Id. ¶ 27. Pursuant to their terms, the consulting agreements automatically were terminated upon the termination of the development agreement. Id. ¶ 19. Hans Mische, LLC did not assign its intellectual property to Medrad, as required by the consulting agreement. Id. ¶ 29-30.

The development and consulting agreements contain nearly identical forum selection clauses. The clause from the development agreement is set out below:

THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK (AND NOT THE LAW GOVERNING CONFLICTS OF LAW).

In the event of any disputes, controversies or claims arising in the connection with this Agreement or the breach thereof, the parties shall try to settle the problem amicably between themselves. Subject to Section 11.5.2, should the parties fail to settle such dispute, controversy or claim, within sixty (60) days from the first notice, each of the parties hereby irrevocably acknowledges and consents that an [sic] legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement shall be brought in the United States District Court for the Northern District of Illinois, or if such court does not have subject matter jurisdiction, the courts of the State of Illinois located in Cook County Illinois, and each of the parties irrevocably submits to and accept [sic] the jurisdiction of such courts. Each party agrees not to dispute the jurisdiction and venue of the courts specified in the immediately preceding sentence, it being agreed, however, that if such courts, of their own accord, refuse to hear such matter, the venue of any legal action or proceeding will be the United States District Court for the Western District of Pennsylvania located in Pittsburgh, Pennsylvania for any action brought by SPRITE and the United States District Court for the District of Minnesota located in Minneapolis, Minnesota for actions brought by MEDRAD and each of the parties irrevocably submits to and accept [sic] the exclusive jurisdiction of such courts. Each party agrees not to dispute the jurisdiction and venue of any court specified in the preceding sentence of this Section 11.5.1.

Ex. A to Second Am. Compl. § 11.5.1; see also Ex. B to Second Am. Compl. § 14; Ex. C to Second Am. Compl. § 14. These clauses were the subject of much negotiation between the parties. Initially, Medrad proposed a Pennsylvania forum and Pennsylvania law, Ex. G to Pl.'s Resp. ¶ 4, whereas defendants preferred a Minnesota forum and Minnesota law. Defs.' Mot. to Dismiss at 8-9. Defendants proposed an Illinois forum and Illinois law as a "mutually inconvenient" compromise. Ex. 2, Attach. C to Pl.'s Resp. § 14. After almost a year of negotiating the development agreement, the parties signed the contract, agreeing to an Illinois forum and New York law. Pl.'s Resp. at 4-5 (noting that five drafts with the final provision above were exchanged before signing the agreement). After the development agreement was signed, Medrad proposed Pennsylvania as the forum and law for the consulting agreements, but defendants insisted on forum and law provisions identical to the development agreement. Pl.'s Resp. at 5.

In accordance with this provision, Medrad filed its complaint on Sept. 5, 2008. The second amended complaint was filed on Feb. 3, 2009. On Jan. 30, 2009, Development, Hans Mische, LLC, and Robert Beck, LLC, filed a complaint in the United States District Court for the District of Minnesota against Medrad, alleging fraud, conversion, and breach of contract in connection with the development and consulting agreements at issue in this case.

DISCUSSION

I. Personal Jurisdiction and Venue

The plaintiff has the burden of showing personal jurisdiction and proper venue. Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). In ruling on motions to dismiss for lack of personal jurisdiction and improper venue pursuant to Federal Rules of Civil Procedure 12(b)(2) and (3), the court may consider matters outside the pleadings, such as affidavits and other materials submitted by the parties. Id. Where the motion is decided on written materials, the plaintiff need only make a prima facie showing that personal jurisdiction exists and venue is ...


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