By Dennis Crouch
Mylan Inc. v. SmithKline Beecham Corp., --- F.3d ----, 2013 WL 3780163 (3rd Cir. 2013)
GSK holds a patent and FDA rights to market and sell AG paroxetine and it does so under the brand name Paxil CR. In a 2007 settlement contract GSK licensed Mylan as a limited generic manufacturer. In 2010, GSK began manufacturing its own generic version that was distributed and sold by Apotex. Mylan then filed suit, arguing that the GSK-Apotex generics violate the 2007 GSK-Mylan contract.
The 2007 contract particularly promised Mylan exclusive rights to market and sell generic paroxetine for the remaining life of the GSK's patent. In response to FTC review, the license was amended to allow "GSK or its Affiliate" to market and sell its own generic version beginning in 2010.
In the lawsuit, Mylan argued that the contract limitation of "GSK or its affiliate" did not include a third-party generic competitor. The district court sided with GSK in finding that the contract language was clear in permitting the GSK-Apotex sales. However, on appeal, the Third Circuit reversed and remanded finding that "latent ambiguity" in the contract language as to whether Apotex is an "affiliate" or a "third party" under the contract.
[T]he alternative reading of the contested language suggested by Mylan [is] both reasonable and supported by objective evidence of the parties' intentions. This demonstrates latent ambiguity in the contractual language. Hence summary judgment was not appropriate on Mylan's breach-of-contract cause of action. "The construction of a written contract is usually a legal question for the court, but where there is uncertainty, ambiguity or the need for parol evidence in aid of interpretation, then the doubtful provision should be left to the jury." Schor v. FMS Fin. Corp., 357 N.J.Super. 185(N.J.Super.Ct.App.Div.2002).
On remand, the court is instructed to proceed to trial.
No Federal Court Jurisdiction?: [Note Update Below] Ordinarily this type of state-law contract lawsuit would be handled in state law court. In the complaint, Mylan alleges both federal question jurisdiction under 28 U.S.C. §1331 and diversity-of-citizenship jurisdiction under 28 U.S.C. §1332. GSK agreed that the case should be heard by the Federal Courts. However, a federal court's subject matter jurisdiction is not subject to agreement by the parties. Rather, the federal courts are of constitutionally limited jurisdiction and the court has an independent duty to determine in each case whether it has proper jurisdiction. And, in this case, it appears that the district court failed in that duty. First, there is no allegation of any violation of federal law. In Gunn v. Minton (2013), the Supreme Court again restated that the mere involvement of a patent law issue is insufficient to create a federal question. Second, the case appears to lack the required complete diversity of citizenship as require under §1332 since both the plaintiff (Mylan Inc.) and a named defendant (SmithKline Beecham Corporation) have their principal places of business in Pennsylvania. See Strawbridge v.. Curtiss, 7 U.S. 267 (1806). Finally, the 2007 contract between the parties indicates that any lawsuit arising from the contract will be brought in the New Jersey Federal District Court. However, once again, consent to jurisdiction of the Federal Court does not provide that court with subject matter jurisdiction over the case.
On remand, district court Judge Pisano and Magistrate Judge Goodman should request briefing on subject matter jurisdiction to determine whether the case should be dismissed.
UPDATE – A reader sent over a case-on-point directly on-point decided two weeks ago by the Third Circuit. Lucier v. SmithKline Beecham Corp., --- F.3d ----, 2013 WL 2456043 (3rd Cir. 2013). Lucier was a thalidomide case against GSK, SmithKline Beecham, Sanofi-Aventis, Grunethal, and others and was originally filed in Pennsylvania state court. Defendants removed the case to Federal Court based on diversity allegation. The plaintiffs challenged diversity by arguing that SKB was a Pennsylvania entity. The Third Circuit sided with the defendants – finding that SmithKline Beecham is not a Pennsylvania entity. It turns out that in 2009, SKB officially changed its name to GSK LLC and converted from a Pennsylvania corporation to a Delaware LLC in order to obtain certain tax benefits. In the conversion, the GSK LLC's headquarters and seeming principal place of business remained in Pennsylvania.
When considering diversity of citizenship, the rule for corporations is that a corporation is a citizen of both its state of incorporation and the state of its principal place of business. However, in Lucier, the Third Circuit determined that the rule is different for limited liability corporations and that the principal place of business is irrelevant. Rather, for LLC's the rule is that the LLC's citizenship is determined by the location of its members (owners). GSK LLC's only member is GSK Holding Company and, since GSK Holding is incorporated and operates from Delaware, both it and its wholly owned LLC are Delaware citizens. In its decision, the Third Circuit admitted the formality of its rule, but said tough.