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Merix Pharmaceutical Corp v. Clinical Supplies Management

May 4, 2012

MERIX PHARMACEUTICAL CORP., PLAINTIFF,
v.
CLINICAL SUPPLIES MANAGEMENT, INC., AND CETERO RESEARCH, INC., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Merix Pharmaceutical Corporation has sued Clinical Supplies Management, Inc. (CSM). Merix asserts state law claims for negligence, breach of fiduciary duty, breach of implied warranty, breach of contract, and fraud. The Court has jurisdiction based on diversity of citizenship. CSM has moved to dismiss Merix's claims. For the reasons stated below, the Court grants the motion in part and denies it in part.

Background

Merix is an Illinois corporation with its principal place of business located in Barrington, Illinois. It manufactures Releev, an over-the-counter topical medication used to treat infections caused by the herpes virus. In 2005, Merix was involved in litigation with GlaxoSmithKline (GSK), a pharmaceutical company that manufactures medications that compete with Releev. As part of that litigation, GSK challenged the claims that Merix made about the efficacy of Releev in the drug's packaging and advertising.

To prove the validity of the claims made in its advertising and packaging, Merix decided to conduct a clinical trial of Releev comparing it with a chemically inactive placebo. The trial was to be double-blind, so that neither the test subjects nor the test administrators would know which patients received Releev and which received the placebo. Merix hired the PRACS Institute, to which it alleges Cetero Research, Inc. is a successor, to conduct the clinical trials. To avoid learning which patients received Releev and which the placebo, PRACS decided to use a subcontractor to receive the clinical supplies and then label, package, and distribute the supplies to the sites where the trial would occur. PRACS suggested CSM as the subcontractor. In October 2005, PRACS hired CSM to process the clinical supplies and distribute them to the test centers.

CSM received the Releev and placebo preparations from the manufacturer, which Merix does not name in the complaint. Both the Releev and the control shipments were accompanied by a certificate of analysis (COA) that detailed the ingredients in each preparation. The COAs revealed that the placebo contained benzalkonium chloride, an antiseptic chemical that is one of the active ingredients in Releev. In short, the placebo was not a true placebo. CSM failed to notice this problem and distributed both the placebo and Releev to the clinical trial sites. No one noticed the problem with the control until after some data from the trial had been collected. The data from the trial was worthless to Merix, however, because both the Releev and placebo preparations contained an active ingredient.

Discussion

CSM argues that personal jurisdiction is lacking and that the majority of Merix's claims against it should be dismissed because they fail to state a claim. Fed. R. Civ. P. 12(b)(2) & (6).

A. Personal jurisdiction

"A complaint need not include facts alleging personal jurisdiction. However, once the defendant moves to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating the existence of jurisdiction."Purdue Research Found. v. SanofiSynthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003) (citation and internal quotation marks omitted). "[O]nce defendant has submitted affidavits or other evidence in opposition to the exercise of jurisdiction, the plaintiff must go beyond the pleading and submit affirmative evidence supporting the exercise of jurisdiction." Id. at 783.

[W]hen the district court rules on a defendant's motion to dismiss based on the submission of written materials, without the benefit of an evidentiary hearing . . . , the plaintiff need only make out a prima facie case of personal jurisdiction. In evaluating whether the prima facie standard has been satisfied, the plaintiff is entitled to the resolution in its favor of all disputes concerning relevant facts presented in the record.

Id. at 782 (emphasis, citations, and internal quotation marks omitted).

"[A] federal court in Illinois may exercise personal jurisdiction over [a defendant] if it would be permitted to do so under the Illinois long-arm statute. A state's exercise of personal jurisdiction is also subject to the demands of the Fourteenth Amendment's due process clause." uBid, Inc. v. GoDaddy Group, Inc., 623 F.3d 421, 425 (7th Cir. 2010) (citations omitted). CSM primarily argues that personal jurisdiction is lacking under several specific sections of the Illinois long-arm statute. The Illinois long-arm statute, however, contains a provision making the jurisdiction it allows coextensive with the jurisdiction allowed by due process, so the Court need only determine whether the requirements of federal and state due process are satisfied. 735 ILCS 5/2-209(c); Citadel Group, Ltd. v. Wash. Reg'l Med. Ctr., 536 F.3d 757, 760--61 (7th Cir. 2008).Although the Illinois Supreme Court has stated that "the Illinois and federal due process requirements hypothetically might diverge in some cases," CSM has not argued that the Illinois due process requirement would prevent the exercise of personal jurisdiction over it even if the federal due process requirement would not. Citadel Group, 536 F.3d at 761 (internal quotation marks omitted).

Discussing federal due process requirements for personal jurisdiction, the Seventh Circuit has stated:

The Due Process Clause of the Fourteenth Amendment prevents a state from exercising specific jurisdiction over a defendant, unless the defendant had certain minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. A state has an interest in providing its residents with a forum for redressing harms caused by an out-of-state actor, particularly where the out-of-state actor has purposefully availed itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws. The defendant's contacts must not be merely random fortuitous, or attenuated, rather, the defendant's conduct and connection with the forum [s]tate must be such that it should reasonably anticipate being haled into court there.

Id. (citations, internal quotation marks, and brackets in original omitted). "Personal jurisdiction can be either general or specific, depending on the extent of the defendant's contacts with the forum state." uBid, 623 F.3d at 425. For specific jurisdiction, but not general jurisdiction, the plaintiff's claim must also "arise out of or relate to" defendant's minimum contacts with the forum state. uBid, 623 F.3d at 429 (internal quotation marks omitted).

In an affidavit, Jennifer Lauinger, a CSM manager, stated that CSM has limited contacts with Illinois. CSM has never had an office or employees in Illinois, and it owns no property in the state. CSM Ex. 1 at 1--2. Lauinger also states that "CSM has never advertised, held a telephone listing or maintained a bank account in Illinois," nor has it been registered with the Illinois Secretary of State to do business in Illinois. Id. at 2. Other than its relationship with Merix, CSM has had only one client in Illinois, Takeda Global R&D Center, Inc., and the revenue CSM generated from Takeda is a very small portion of its overall revenue. Id. CSM never shipped any products to Takeda in the state of Illinois. Id. When working for Merix, CSM never shipped any of the Releev or placebo preparations to Illinois. Id. at 4.

On the other hand, Merix has presented documents showing that even if CSM did not do much business with Illinois companies, it actively sought out customers in this state. See uBid, 623 F.3d at 427 (Internet company had minimum contacts when its national advertising reached significant numbers of Illinois customers and it had some Illinois specific advertising). Between 2005 and 2001, CSM had sales-related contacts with more than twenty Illinois businesses in addition to Merix and Takeda. Cannon Affidavit, Ex. 6. Those contacts included phone calls, e-mails, and meetings. CSM also entered into confidential disclosure agreements (CDAs) with three Illinois companies as a preliminary step to discussing a business relationship, although apparently none of the three ever became clients of CSM. Id., Ex. 7. CSM employees attended a trade show in Chicago in 2010, and the company and its employees placed advertising and articles in national publications that were available to Illinois residents. Id., Exs. 8 & 9.

In addition, Merix has presented documents indicating that CSM made almost 200 shipments to destinations in Illinois. Id., Ex. 5. Neither party indicates who received the shipments, except that according to Lauinger's affidavit, it was not Takeda or Merix. CSM also held Illinois licenses to operate as a pharmacy and to distribute controlled substances in Illinois between 2003 and 2010, although it apparently obtained the licenses as part of a planned business expansion that never actually took place. CSM Ex. 1 at 2--3.

Perhaps most importantly, Merix's evidence shows that CSM contacted Merix in Illinois to initiate their business relationship. Lauinger states that PRACS first contacted CSM outside Illinois to discuss CSM working as a subcontractor on the Merix clinical trial. Id. at 3. In an affidavit, however, Meryl Squires, the president and CEO of Merix, stated that PRACS and CSM employees placed a joint telephone call to her at Merix's offices in Illinois. Squires Affidavit ¶ 13. In that call, PRACS and CSM proposed that Merix hire CSM to do part of the work on the clinical trial. Id. Squires discussed confidentiality with PRACS and CSM, and in the course of the conversion, she asked CSM to submit a lower bid. Id. ¶¶ 13--14. CSM submitted the lower bid the next day. Id. ¶ 14. CSM eventually generated and signed a work order setting out the tasks it would perform for PRACS. Squires Affidavit, Ex. 12. Merix, PRACS, and CSM signed the work order, which required CSM to "use its best efforts to be available to [Merix] to testify, if necessary, in any litigation concerning the Study(ies), and [Merix] and CSM shall enter into a separate agreement concerning such services." Id.

The evidence presented by Merix is sufficient to establish a prima facie case of specific personal jurisdiction over CSM. CSM argues that a corporation does not have minimum contacts merely because it advertises nationally and those advertisements are visible in a state. See C.S.B. Commodities, Inc. v. Urban Tren (HK) Ltd., 626 F. Supp. 2d 837, 853--54 (N.D. Ill. 2008). That particular contact aside, however, the evidence reflects that CSM purposefully availed itself of the privilege of doing business in Illinois such that it should have anticipated being haled into court here. CSM repeatedly solicited business from Illinois entities, and it shipped products into Illinois and maintained a license allowing it to operate as a pharmacy. See Citadel Group, 536 F.3d 762--64 (company that commissioned work from Illinois company and had corresponded with company twenty-four times had minimum contacts). In this case, after PRACS ...


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