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Lannett Co., Inc. v. Asherman

United States District Court, E.D. Pennsylvania

February 24, 2014

LANNETT COMPANY, INC. and ARTHUR BEDROSIAN
v.
RICHARD ASHERMAN

MEMORANDUM

JOHN R. PADOVA, District Judge.

Plaintiffs Lannett Company, Inc. ("Lannett") and Arthur Bedrosian, the President and Chief Executive Officer ("CEO") of Lannett, brought this action against Defendant Richard E. Asherman arising out of a corporate business relationship among the parties. Presently before the Court is Asherman's Motion to Dismiss, which seeks dismissal of the entire case for improper venue pursuant to Fed.R.Civ.P. 12(b)(3); transfer of the case to the District of Wyoming pursuant to 28 U.S.C. § 1404(a); dismissal of Count Four for failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12(b)(6); and/or dismissal of Count Five as an improper anticipatory filing pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. For the following reasons, we deny the Motion insofar as it seeks to dismiss the case for improper venue, grant the Motion insofar as it seeks to transfer the case pursuant to 28 U.S.C. § 1404(a), and hold the Motion in abeyance, in all other respects, until this action is transferred to the United States District Court for the District of Wyoming.

I. BACKGROUND

The Complaint alleges the following facts. Plaintiff Arthur Bedrosian, a Pennsylvania resident, is the President and CEO of Lannett. (Compl. ¶ 9.) Lannett, which is incorporated in Delaware and has its principal place of business in Philadelphia, Pennsylvania, develops, manufactures, and distributes generic pharmaceutical products throughout the United States. (Id. ¶¶ 1, 7.) Lannett is also the sole owner of subsidiary Cody Laboratories, Inc. ("Cody Labs"), a Wyoming corporation that manufactures component parts of generic drugs, and which acts as a supplier to Lannett. (Id. ¶ 8.) Bedrosian is also the Chairman of the Board of Cody Labs. (Id. ¶ 9.) Asherman is the CEO of Cody Labs. (Id. ¶ 10.)

Cody Labs occupies a property owned by Cody LCI Realty, LLC ("Cody LCI"), a Wyoming limited liability company. (Id. ¶¶ 11-12.) Lannett is the manager and a 50% member of Cody LCI. (Id. ¶¶ 11, 13.) Asherman is also a 50% member of Cody LCI. (Id. ¶¶ 11, 13.) Cody LCI is governed by a Limited Liability Company Operating Agreement (the "Operating Agreement"), which is signed by Lannett and Asherman. (Id. ¶¶ 14, 16.) The Operating Agreement states that Lannett's duty as Manager of Cody LCI is to control the business transactions and decisions of the company and to exercise sound business judgment. (Id. ¶ 17.) It also provides that Cody LCI may be dissolved upon certain "Events of Dissolution, " including the unanimous written consent of all members, except for defaulting members. (Id. ¶ 18.) A "defaulting member" is defined as any member that, after failing to perform or breaching its obligations under the Operating Agreement or breaching any terms of the Operating Agreement, fails to cure such default within 30 days of receiving notice of default. (Id. ¶ 19.)

In December 2012, Cody LCI, Cody Labs, the City of Cody, and a third company named Forward Cody Wyoming, Inc. ("Forward Cody"), entered into a Project Development and Administrative Agreement by which Cody LCI agreed to convey a part of its property to Forward Cody, and that company would use grant money from the State of Wyoming to construct a building for Cody LCI. (Id. ¶ 15.) Cody LCI and Forward Cody then entered into an agreement by which Cody LCI leased that property back from Forward Cody. (Id.)

Asherman demanded to be compensated for the alleged reduction in value of his interest in Cody LCI as a result of its conveyance of property to Forward Cody, or in the alternative, he demanded that Lannett liquidate a portion of Asherman's interest in Cody LCI for fifty percent of the appraised value of the property. (Id. ¶¶ 30-31.) Lannett refused both of Asherman's demands. (Id. ¶ 32.)

In August 2012, Asherman asserted that his position as CEO of Cody Labs and his personal membership in Cody LCI created a conflict of interest. (Id. ¶ 33.) At that time, Asherman felt that he could not fulfill his fiduciary duties as an officer of Cody Labs because he had a financial interest in Cody LCI. (Id. ¶ 34.) To remedy this conflict of interest, Asherman demanded that Lannett pay him the pro rata value of his interest in Cody LCI, and Lannett agreed to consider his demand conditioned on Lannett's approval of the appraised value of the company. (Id. ¶¶ 35-36.) Ultimately, Lannett refused Asherman's demand because Asherman continued to make ever-changing pretextual demands on Lannett. (Id. ¶ 37.)

In September 2012, Asherman secretly tape recorded a telephone conversation of the Board of Directors of Cody Labs without consent. (Id. ¶¶ 39-40.) Bedrosian participated in this meeting telephonically from Pennsylvania. (Id. ¶ 41.) Asherman participated in this meeting telephonically from Wyoming. (Id. ¶¶ 42, 84.)

On January 4, 2013, Asherman delivered a letter to Lannett advising Lannett that it was in default of the Operating Agreement, and requested that Bedrosian cure those alleged defaults by increasing Cody LCI's insurance coverage, securing a performance bond on behalf of Cody Labs, and adjusting the rent payments between Cody LCI and Cody Labs. (Id. ¶ 45.) Bedrosian sent Asherman a letter on January 25, 2014, denying that it was in default on those grounds. (Id. ¶ 46.) On January 29, 2014, Asherman sent Bedrosian a response indicating that he believed that Lannett continued to be in default and was obligated to attempt to cure that default. (Id. ¶ 48.)

On February 7, 2014, Asherman delivered a letter to Lannett threatening to file a lawsuit against Lannett, Bedrosian, and Cody Labs unless Asherman was released from his employment agreement with Cody Labs and paid full severance benefits, and Lannett agreed to buy out his interest in Cody LCI. (Id. ¶¶ 51-52.) On March 1, and again on March 12, Asherman threatened to dissolve Cody LCI. (Id. ¶¶ 53, 56.) On March 14, 2013, Asherman threatened to halt operations of Cody Labs. (Id. ¶ 59.) The following day, the Board of Cody Labs met to address Asherman's threats, and Asherman withdrew his threats against Cody Labs. (Id. ¶¶ 61-62.) On March 20, 2013;, the Board of Cody Labs served Asherman with a formal reprimand. (Id. ¶ 63.) Asherman sent a letter in response to the reprimand in which he asserted that he had been prevented from performing his duties as CEO by Lannett and the Board of Cody Labs. (Id. ¶ 65.)

In the Complaint, Lannett and Bedrosian assert five claims against Asherman: Breach of Contract (Count One), Breach of Fiduciary Duty (Count Two), Breach of Covenant of Good Faith and Fair Dealing (Count Three), Invasion of Privacy (Count Four), and Declaratory Judgment (Count Five). (Id. ¶¶ 66-93.)

II. DISCUSSION

A. Motion to Dismiss Based on Improper Venue

We first consider Asherman's Motion to Dismiss insofar as it seeks dismissal for improper venue pursuant to Rule 12(b)(3).

1. Legal Standard

Federal Rule of Civil Procedure 12(b)(3) provides that a motion to dismiss may be made on the basis of improper venue. In the Third Circuit, the burden of demonstrating improper venue is placed on the defendant. Bockman v. First Am. Mktg. Corp. , 459 F.Appx. 157, 160 (3d Cir. 2012) (citing Myers v. Am. Dental Ass'n , 695 F.2d 716, 724-25 (3d Cir. 1982)). In considering a motion to dismiss for improper venue, the court must generally accept as true the allegations in the pleadings, and must draw all reasonable inferences and resolve all factual conflicts in the plaintiff's favor. Fellner v. Phila. Tobbogan Coasters, Inc., Civ. A. No. 05-2052 , 2005 WL 2660351, at *1 (E.D. Pa. Oct. 18, 2005) (citations omitted). The parties may submit affidavits in support of their positions and may stipulate as to certain facts. Manning v. Flannery, Civ. A. No. 09-03190 , 2010 WL 55295, at *4 (E.D. Pa. Jan. 6, 2010). However, even when the court considers affidavits and other evidence outside the pleadings, the court "must draw all reasonable inferences and resolve all factual conflicts in the plaintiff's favor." Id . (citing ProModel Corp. v. Story, Civ. A. No. 07-3735, 2007 WL 412502, at *1 (E.D. Pa. Nov. 19, 2007)).

2. Analysis

Asherman argues that his alleged wrongful conduct occurred in Wyoming - not in the Eastern District of Pennsylvania - and that venue is therefore improper here. By contrast, Plaintiffs assert that this district is a proper venue under 28 U.S.C. § 1391(b)(2) because "a substantial part of the events or omissions giving rise to the claim[s] occurred" here. (Compl. ¶ 6.)

When a defendant challenges venue under § 1391(b)(2), we undertake a two-part inquiry. First, we "identify the nature of the claims and the acts or omissions that the plaintiff alleges give rise to those claims.'" Chester v. Beard, Civ. A. No. 07-4742 , 2008 WL 2310946, at *7 (quoting Daniel v. Am. Bd. of Emergency Med. , 428 F.3d 408, 432 (2d Cir. 2005)). "The test for determining venue is not the defendant's contacts' with a particular district, but rather the location of those events or omissions giving rise to the claim....'" Cottman Transmissions Sys. v. Martino , 36 F.3d 291, 294 (3d Cir. 1994).

Second, we "determine whether a substantial part of those acts or omissions... material to [those] claims... have occurred in the district in question.'" Chester , 2008 WL 2310946, at *7 (quoting Daniel , 428 F.3d at 432). "Substantiality is intended to preserve the element of fairness so that a defendant is not haled into a remote district having no real relationship to the dispute." Cottman , 36 F.3d at 294. Consequently, "[w]hen material acts or omissions within the forum bear a close nexus to the claims, they are properly deemed significant' and thus, substantial.'" Leone v. Cataldo , 574 F.Supp.2d at 484 (E.D. Pa. 2008) (quoting Daniel , 428 F.3d at 432); see Gulf Ins. Co. v. Glasbrenner , 417 F.3d 353, 357 (2d Cir. 2005). Conversely, "[e]vents or omissions that might only have some tangential connection with the dispute in litigation are not enough." Cottman , 36 F.3d at 294; see also Leone , 574 F.Supp.2d at 484. Because § 1391 "does not require a majority of the events take place here, nor that the challenged forum be the best forum for the lawsuit to be venued, '" Fellner , 2005 WL 2660351, at *3 (quoting Park Inn Int'l, L.L.C. v. Mody Enters., Inc. , 105 F.Supp.2d 370, 376 (D.N.J. 2000)), "[i]t is irrelevant that a more substantial part of the events took place in another district, as long as a substantial part of the events took place in [this] district as well.'" Rodriguez v. Smith, Civ. A. No. 03-3675 , 2005 WL 1484591, at *3 n.5 (E.D. Pa. June 21, 2005) (quoting Morris v. Genmar Indus., Inc., Civ. A. No. 91-5212 , 1993 WL 217246, at *5 (N.D.Ill. July 18, 1993)). At bottom, the substantiality inquiry is more qualitative than quantitative. Daniel , 428 F.3d at 432.

Where, as in this case, a complaint contains multiple claims, venue must be proper for each claim. Phila. Musical Soc'y, Local 77 v. Am. Fed'n of Musicians of the United States & Canada , 812 F.Supp. 509, 517 (E.D. Pa. 1992).

Turning to the first part of the inquiry, Plaintiffs assert five claims: (1) Asherman breached the Operating Agreement by demanding that Cody LCI compensate him for its conveyance of property to Forward Cody, demanding that Lannett buy out his membership interest in Cody LCI, and unilaterally attempting to dissolve Cody LCI; (2) Asherman breached his fiduciary duties based on those same actions; (3) Asherman breached the Operating Agreement's implied covenants of good faith and fair dealing; (4) Asherman committed invasion of privacy by recording Bedrosian's communications during the August 2012 telephone conference without consent; and (5) Plaintiffs are entitled to declaratory relief.

Turning to the second part of the inquiry, we next "determine whether a substantial part of those acts or omissions... material to [those] claims... have occurred in the district in question.'" Chester , 2008 WL 2310946, at *7 (quoting Daniel , 428 F.3d at 432).

(a) Breach of Contract (Count One), Breach of Fiduciary Duty (Count Two), and Breach of Covenant of Good Faith and Fair Dealing (Count ...


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