Meridian Labs., Inc. v. OncoGenerix USA, Inc.

MERIDIAN LABORATORIES, INC., Plaintiffs, v. ONCOGENERIX USA, INC., Defendant.

No. 18 C 6007

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

May 13, 2020

Judge Jorge L. Alonso

MEMORANDUM OPINION AND ORDER

In this commercial dispute, plaintiff Meridian Laboratories, Inc. ("Meridian") has filed a second amended complaint against defendant OncoGenerix USA, Inc. ("OncoGenerix"), asserting claims of breach of contract, fraud, and misappropriation of trade secrets. Defendant moves to dismiss the claims in Counts III, V and VI of plaintiff's amended complaint. For the following reasons, the motion is denied.

BACKGROUND

The following facts are alleged in the second amended complaint and are assumed true for purposes of the present motion to dismiss. Plaintiff, Meridian Laboratories, Inc., is a drug development company located in Buffalo Grove, Illinois. At great expense, Meridian has developed a proprietary formulation of docetaxel known as ML 141. Docetaxel is a compound that has been known for years to be an effective treatment for many forms of cancer, but, according to Meridian, it was generally available only in formulations containing stabilizing ingredients, including tween 80 and ethanol, that cause serious side effects. The presence of these stabilizing ingredients limits the amount of docetaxel that can be delivered per dose, which limits the effectiveness of docetaxel as a cancer treatment. Meridian's ML 141 product, however, is both stable and free from these dangerous stabilizing ingredients, which allows patients to tolerate higher doses, leading to improved treatment outcomes.

As part of its preparations for bringing ML 141 to market, Meridian sought a vendor through which it could manufacture large batches of the product. Roland Franke, the general counsel of a Meridian supplier, introduced William Zhao, Meridian's CEO, to OncoGenerix as a potential contract manufacturing organization ("CMO"). A series of meetings and communications between Meridian and OncoGenerix followed. From March 6, 2016, to March 8, 2016, Zhao visited OncoGenerix's facility in Mundanjiang, China, meeting with OncoGenerix representatives Dmitry Itkin, Edwin Rodriguez, and Austin McDonald, each of whom represented that OncoGenerix had the capability to timely and competently manufacture ML 141 for Meridian. On March 28, 2016, Meridian tendered a request for proposal setting forth its requirements, and on April 18, 2016, OncoGenerix submitted a response, in which it represented that it had the "capability and intention" to fulfill Meridian's requirements. (2d Am. Compl. ¶ 18c, ECF No. 74.) On May 15 and 16, 2016, Zhao returned to the OncoGenerix facility in China with two scientists from the laboratory that had developed ML 141 for Meridian, and OncoGenerix representatives assured Zhao that OncoGenerix had the "capability and intention" to manufacture ML 141 for Meridian on a timely basis. (Id. ¶ 18d.) On May 25 and 26, 2016, OncoGenerix representatives Edwin Rodriguez and Zhen Li visited the laboratory in Nanjing, China, that had developed ML 141 for Meridian, ostensibly to learn details of the ML 141 manufacturing project, and again they assured Meridian that they had the "capability and intention" to manufacture ML 141 for Meridian. (Id. ¶ 18e.) On July 22, 2016, OncoGenerix's management team, including Dmitry Itkin, Roland Franke (who had moved to OncoGenerix as Chief Scientific Officer and Vice President of Business Development), and Austin McDonald, visited Meridian's Buffalo Grove, Illinois officesto meet with a team of Meridian representatives including Zhao, John Thottatail and Denise Smith. The parties discussed OncoGenerix's "purported capability of acting as CMO for the ML 141 project," and the OncoGenerix representatives again assured Meridian that OncoGenerix could handle the project. (2d Am. Compl. ¶ 18f.)

On September 26, 2016, in reliance on these representations, Meridian entered into a Service Provider Agreement ("SPA") with OncoGenerix, in which OncoGenerix agreed to undertake process development, stability filling, and stability testing of ML 141. In early 2017, believing based on its relationship with OncoGenerix that it was positioned to produce large quantities of ML 141, Meridian entered into a contract with a large international pharmaceutical distributor to market ML 141 in the United States and Canada. (Meridian does not name the distributor, citing confidentiality provisions of their contract.) Under the contract with the distributor, if sales were strong, Meridian stood to earn milestone payments of more than $10,000,000, "the majority of which was directly dependent upon the timely performance of OncoGenerix in testing and manufacturing sufficient quantities of ML 141." (2d Am. Compl. ¶ 24.) OncoGenerix participated in communications with the distributor and was aware of the terms of the contract and its own role in Meridian's performance.

In the course of its performance of its obligations under the SPA, and subject to the SPA's confidentiality provisions, Meridian disclosed "key trade secrets" to OncoGenerix, including the formula for ML 141, specific laboratory techniques for its production, vendors for inputs to ML 141, the identities of contacts at the distributor, terms of Meridian's agreement with the distributor, and methods and strategies for the commercialization of ML 141. (Id. ¶ 23.) Under the SPA, Meridian paid OncoGenerix "hundreds of thousands" of dollars (id. ¶ 26), and Meridian reiterated in numerous communications with OncoGenerix that its timely performance was essential and ofthe utmost importance, but OncoGenerix still failed to timely perform its obligations. In an email dated July 17, 2017, OncoGenerix informed Meridian that it was placing its performance "on hold."

On August 28, 2017, Meridian wrote to OncoGenerix that the latter was in breach of contract and Meridian would terminate the SPA if OncoGenerix did not cure the breaches within ten days. OncoGenerix still failed to cure the breaches, and Meridian terminated the SPA on September 15, 2017. OncoGenerix refused to refund the amounts Meridian had paid under the SPA. Because of OncoGenerix's failure to timely perform under the SPA, Meridian missed out on the milestone payments from the distributor that it otherwise would have received.

OncoGenerix had told Meridian that it was unable to perform because Meridian had not provided it with the complete formula for ML 141. But, after terminating the SPA, Meridian retained another vendor who, with the same information Meridian had given OncoGenerix, completed in a few weeks the work that OncoGenerix had been unable to complete in a year. Meridian subsequently learned from a third party that OncoGenerix is currently attempting to develop its own drug to compete with ML 141. Upon following up with further communications with the third party and receiving email communications sent by OncoGenerix, Meridian has learned that OncoGenerix has been contacting suppliers and is engaged in development of a product identical to ML 141 in OncoGenerix's China laboratory.

Meridian filed this suit in 2018, asserting diversity jurisdiction. Meridian's second amended complaint consists of six counts: Count I, for breach of contract by failing to provide the services Meridian paid for under the SPA; Count II, for an injunction to prohibit OncoGenerix from using Meridian's confidential information pursuant to section 5.2 of the SPA; Count III, for an injunction pursuant to the Illinois Trade Secrets Act, 765 ILCS 1065/3, to prohibit OncoGenerixfrom using Meridian's trade secrets to commercialize any drug similar to ML 141; Count IV, for breach of contract by misusing Meridian's confidential and proprietary information to develop a drug competing with ML 141; Count V, captioned as "Misappropriation of Trade Secrets," for violating the "confidentiality and non-disclosure provisions" of the SPA by "us[ing] and threaten[ing] to use Meridian's confidential information for its own business purposes in its attempt to develop and market a competitive drug to ML 141" (2d Am. Compl. ¶¶ 74-76); and Count VI, for fraud by falsely representing that OncoGenerix had the capability to timely perform under the SPA in order to induce Meridian not only to make payments for services it would not receive, but also "to induce Meridian to disclose confidential and proprietary information which OncoGenerix intended to misappropriate to develop its own competing drug" (2d Am. Compl. ¶ 80).

ANALYSIS

"A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief may be granted." Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "'give the defendant fair notice of what the claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (internal quotation altered)).

Under federal notice-pleading standards, a plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. Stated differently, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "A claimhas facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S.at 556). "In reviewing the sufficiency of a complaint under the plausibility standard, [courts must] accept the well-pleaded facts in the complaint as true, but [they] 'need[ ] not accept as true legal...