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Mylan, Inc., and Mylan Institutional, LLC v. George Zorich

February 16, 2012

MYLAN, INC., AND MYLAN INSTITUTIONAL, LLC,
PLAINTIFFS,
v.
GEORGE ZORICH, ECF NO. 3
DEFENDANT.



The opinion of the court was delivered by: Chief Magistrate Judge Lisa Pupo Lenihan

OPINION

LENIHAN, Chief Magistrate Judge

This action arises from the alleged breach of non-competition and non-solicitation provisions contained in a Consulting Agreement entered into between Plaintiff, Mylan, Inc., and Defendant, George Zorich. Currently pending before the Court is Plaintiffs' Motion for Remand (ECF No. 3). In support of this motion, Plaintiffs argue that Zorich improperly removed this action from the Court of Common Pleas of Washington County based upon diversity of citizenship because Plaintiff Mylan Institutional LLC and Defendant Zorich are both citizens of Illinois, and Zorich cannot show that Mylan Institutional was fraudulently joined. For the reasons set forth below, the Court will Grant Plaintiff's Motion for Remand.

I. BACKGROUND & PROCEDURAL HISTORY

The relevant facts, which the Court accepts as true for purposes of deciding the motion to remand,*fn1 are as follows. Mylan, Inc. ("Mylan"), is a Pennsylvania corporation located in Canonsburg, Pennsylvania, and is the second largest generic pharmaceutical company in the United States. (Compl. ¶1, ECF No. 1-2.) Mylan Institutional LLC ("Mylan Institutional") is a Delaware limited liability company with its headquarters located in Rockford, Illinois. (Id. at

¶2.) Mylan Institutional, a subsidiary of Mylan (Id. at ¶10), is a customer-focused business providing a variety of pharmaceutical products and services to institutional customers (Id. at ¶2).

At all relevant times, Defendant George Zorich ("Zorich" or "Defendant") resided in or near Chicago, Illinois. (Id. at ¶¶ 3, 35.) In 2006, Zorich was hired by Bioniche Pharma USA LLC ("Bioniche") as President of its North American operations. (Id. at 7.) Bioniche was an Illinois based pharmaceutical company specializing in difficult to formulate and manufacture injectable drugs. (Id. at ¶6.)

On July 14, 2010, Mylan acquired Bioniche, which became a part of Mylan Institutional. (Id. at ¶10.) Mylan Institutional currently conducts the business of Bioniche. (Id.) At the time of the acquisition of Bioniche, Zorich was president of Bioniche's North American operations. As part of the share purchase agreement ("SPA") executed by Bioniche and Mylan, certain specified employees of Bioniche, including Zorich, agreed to enter into consulting agreements with Mylan. (Id. at ¶11.) Zorich's promise to enter into a consulting agreement with Mylan, in part, induced Mylan to execute the SPA. (Id.) In return for Zorich's promise to enter into a consulting agreement and in concert with the acquisition, Mylan (or Bioniche at Mylan's direction) agreed to provide Zorich with a cash bonus and permission to exercise Bioniche stock options which Mylan agreed to purchase at a premium, as well as additional consideration set forth in the Consulting Agreement entered into on July 14, 2010, between Mylan and Zorich. (Id. at ¶¶12-13; Ex. A to Compl., ¶3.)

Under the Consulting Agreement, Zorich's services consisted of devoting his "full working time and attention to the business and affairs of [Mylan] and its affiliate companies and subsidiaries (collectively, the "Mylan Companies") and . . . to serve [Mylan] faithfully and to the best of [his] ability, and use [his] best efforts to promote the interests of the Mylan Companies." (Compl., ¶¶19, 26; Ex. A to Compl., ¶1). In connection with these services, Zorich gained access to the confidential and trade secret information of Mylan.

Pursuant to paragraph 5 of the Consulting Agreement, Zorich agreed that for 24 months after the termination of the agreement, he would not become employed or associated with any person, corporation or other entity engaged in research, development, manufacturing, production, marketing, promotion or sale of any product the same as or similar to those of the Mylan Companies, or which competes with any line of business with the Mylan Companies. (Ex. A to Compl. at ¶5(a).) Zorich also agreed not to solicit, divert or take away any customers or suppliers of Mylan Companies or to contact same for such purposes. (Ex. A to Compl. at ¶5(b).) In addition, Zorich agreed not to solicit, hire or otherwise induce any employee of Mylan Companies to leave for any reason. (Ex. A to Compl. ¶5(c).) The Consulting Agreement was extended by the parties and eventually terminated in June of 2010. (Compl., ¶17.)

Mylan believes that Zorich has breached the non-compete provision of the Consulting Agreement. Sometime prior to January 10, 2012, it is believed that Zorich joined a competitor of Mylan, W.G. Critical Care, as its chief executive officer. (Compl., ¶¶30-31.) According to a description of its services in the trademark application filed with the United States Patent and Trademark Office, W.G. Critical Care offers a "full line of injectable generic pharmaceutical preparations." (Id. at ¶32.) Mylan believes that Zorich continues to live and work for W.G. Critical Care in Illinois. (Id. at ¶35.)

Mylan Institutional derives a sizeable amount of its business from the market for generic injectables and these products comprise a substantial component of the marketplace in which Mylan Institutional does business. (Compl., ¶33.) Mylan Institutional operates the entity acquired by Mylan from Zorich's former employer, Bioniche. (Id.) The majority of Zorich's consulting duties under the Consulting Agreement involved work for Mylan Institutional. (Id.) Mylan believes that Zorich is serving in an executive capacity for W.G. Critical Care that is substantially similar to the capacity in which he worked for Bioniche and later provided through consulting services to Mylan. (Id. at ¶34.)

Mylan further believes that Zorich breached the non-solicitation provision in paragraph 5 of the Consulting Agreement by soliciting Michael Bohling, former director of sales operations at Mylan Institutional, to join W.G. Critical Care as vice president of sale operations, where he would be working to market products including generic injectables.*fn2 (Id. at ¶¶36-37.) As director of sales operations at Mylan Institutional, Bohling was privy to Mylan's confidential, propriety, and trade secret information. (Id. at ¶39.) Prior to his resignation from Mylan Institutional, Bohling downloaded nearly 40 gigabytes of proprietary and confidential data, including Mylan Institutional's largest share drive. (Id. at ¶¶37, 41.)

Consequently, on or about January 19, 2012, Mylan and Mylan Institutional sought injunctive relief for breach of the Consulting Agreement by filing the instant lawsuit in the Court of Common Pleas of Washington County, Pennsylvania ("common pleas court" or "state court"). (Notice of Removal at ¶1, ECF No. 1.) On that same date, Plaintiffs filed an ex parte motion for special injunction and expedited discovery, and the common pleas court entered a temporary order enjoining Zorich from being employed by W.G. Critical Care and soliciting Plaintiffs' employees; directing Zorich to preserve documents/information related to the litigation and to return any of Plaintiffs' confidential, proprietary, and trade secret information; and granting Plaintiffs leave to conduct expedited discovery. (Ex. C attached to Notice of Removal, ECF No. 1-4.) The common pleas court also ordered that a hearing on the request for preliminary injunction would be held on January 24, 2012. (Id.) However, before that hearing could take place, Zorich filed a timely Notice of Removal, pursuant to 28 U.S.C. §1441(a), thereby removing the instant action to this Court on January 24, 2012.

In support of his removal petition, Zorich submits that this Court has original subject matter jurisdiction over this action pursuant to 28 U.S.C. §1332(a)(1), as there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000, exclusive of interest and costs. (Notice of Removal at ¶6.) Zorich contends that although Mylan Institutional is a citizen of Illinois (by virtue of its principal place of business being located in Illlinois),*fn3 as well as Zorich, Mylan Institutional was misjoined as a plaintiff because (1) it is not a party to the Consulting Agreement, and thus, lacks standing to bring this lawsuit, and (2) it was not an intended third party beneficiary of the Consulting Agreement. (Id. at ¶¶9- 11.) Therefore, under the doctrine of fraudulent joinder, Zorich maintains that the citizenship of Mylan Institutional must be disregarded for purposes of determining diversity. When Mylan Institutional's citizenship is disregarded, Zorich contends complete diversity exists.

In response, Plantiffs filed a motion to remand this action to state court on January 25, 2012 (ECF No. 3), arguing that under Pennsylvania law, Mylan Institutional is an intended third party beneficiary under the Consulting Agreement, and therefore, complete diversity does not exist. The Court set an expedited briefing schedule on the motion to remand. The motion and response in opposition have been fully briefed. Thus, the motion to remand is ripe for disposition.

II. LEGAL STANDARD -- REMOVAL & MOTION TO REMAND

Section 1441 of Title 28, United States Code, governs the removal of a case to federal court. Generally, "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant . . . , to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. §1441(a). "The removal statutes 'are to be strictly construed against removal and all doubts should be resolved in favor of remand.'" Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006, 1010 (3d Cir. 1987) (other citations omitted)); Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 219 (3d Cir. 2005). Where a motion for remand is filed, the defendant has the burden of proving that removal was proper. Sikirica, 416 F.3d at 219 (citing Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392, 396 (3d Cir. 2004)).

When a state court action has been removed to federal court based on diversity of citizenship, as in the present case, complete diversity of citizenship of the parties must exist and none of the defendants may be a citizen of the forum state. 28 U.S.C. §1441(b); In re Briscoe, 448 F.3d 201, 215 (3d Cir. 2006) (citation omitted). The doctrine of fraudulent joinder provides an exception to this rule. In re Briscoe, 448 F.3d at 215-16 (citation omitted). In order for this exception to apply and thus provide a basis for this Court's subject matter jurisdiction, the removing party must "establish that the non-diverse [party was] 'fraudulently' named or joined solely to defeat removal jurisdiction." Id. at 216. If a court concludes that a party was fraudulently joined, "the court can 'disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction.'" Id. (quoting Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir.1999)). However, if the court finds that the joinder was not fraudulent and therefore it lacks subject matter jurisdiction over the removed action, the matter must be remanded to state court. Id. (citing 28 U.S.C. ยง1447(c)). In making this determination, the Court may look beyond the pleadings to identify indicia of fraudulent joinder. ...


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