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P&L Development LLC v. Bionpharma, Inc.

United States District Court, M.D. North Carolina

February 14, 2019

P&L DEVELOPMENT, LLC, Plaintiff,
v.
BIONPHARMA, INC. and BIONPHARMA HEALTHCARE LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          N. Carlton Tilley, Jr. Senior United States District Judge.

         This matter is before the Court on Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Claim for Unfair and Deceptive Trade Practices (Seventh Cause of Action) [Doc. #136]. For the reasons explained below, Defendants' motion is granted. Defendants' Motion for Judgment on the Pleadings as to Plaintiff's Claim for Unfair and Deceptive Trade Practices (Sixth Cause of Action) [Doc. #128], filed as to the initial complaint which has now been amended, is denied as moot.

         I.

         This action began in December 2017 when Plaintiff P&L Development LLC (“PLD”) sued Defendants Bionpharma Inc. and Bionpharma Healthcare LLC (collectively “Bion”) alleging claims for breach of contract, breach of the covenant of good faith and fair dealing, and unfair and deceptive trade practices. (See Verified Compl. [Doc. #7].) In January 2018, PLD moved for a temporary restraining order and preliminary injunction, and the temporary restraining order was granted in limited part. Prior to the scheduled hearing on the preliminary injunction and other matters, the parties reached an agreement on the preliminary injunction. During the hearing, their motion for a stay until June 1, 2018 was granted.

         After the period of stay ended, Bion filed its Answer and Counterclaim and moved for judgment on the pleadings as to PLD's unfair and deceptive trade practices claim. Afterwards, PLD amended its complaint by modifying the factual and legal allegations and adding a claim of fraud. (Am. Compl. [Doc. #126].) Bion answered and once again moved for judgment on the pleadings as to PLD's unfair and deceptive trade practices claim.

         II.

         PLD, a Delaware limited liability company with its principal place of business in New York, and Bion, Delaware companies[1] with their principal places of business in New Jersey, were successor parties to four agreements (“Agreements”) entered into in 2003, 2004, 2011, and 2012 according to which Bion and its predecessors would manufacture, imprint, and bulk package pharmaceuticals (“Products”) which PLD and its predecessor would then market and sell as a private label or store brand. (Am. Compl. ¶¶ 1, 3, 4; Answer ¶¶ 3, 4; Ex. C to Am. Compl., 2003 Ibuprofen Agreement; Ex. D to Am. Compl., 2012 Naproxen Agreement; Ex. E to Am. Compl., 2011 Cetirizine Agreement; Ex. F to Am. Compl., 2004 Loperamide Agreement.)

         Each of the Agreements had a defined Term that would automatically renew at the end of the Term for one year unless a party gave the requisite written notice of non-renewal. (Ibuprofen Supply Agreement § 8.1 & Amends.; Naproxen Supply Agreement § 10.1; Cetirizine Supply Agreement § 10.1; Loperamide Supply Agreement § 8.1.) In September 2017, Bion notified PLD of its intent not to renew the Agreements “upon expiration of their current terms on March 31, 2018[2].” (Ex. B to Am. Compl., Letter from Bion to P&L Dev. of N.Y. Corp. (Sept. 11, 2017).) The Agreements obligated Bion “to provide Products to PLD at least through March 31, 2018, and later under certain Supply Agreements if outstanding firm orders were received prior to” that date. (Am. Compl. ¶ 42.) Despite this obligation, and well before notifying PLD of its intent not to renew the Agreements, Bion began reducing or rejecting PLD's orders and instructing Patheon Softgels, Inc. (“Patheon”), the manufacturer of the Products with whom Bion contracted, to redirect its manufacturing from PLD to Bion.

         The Agreements called for PLD to place its orders with Bion which forwarded them to Patheon. (Id. ¶¶ 29, 30, 50, 74, 96, 113.) After Patheon manufactured the Products at its High Point, North Carolina facility, it would ship them directly to PLD. (Id. ¶¶ 50, 74, 96, 113.) However, in May 2017, Bion began reducing or rejecting some of PLD's purchase orders for Ibuprofen and Naproxen, at times taking the position that it was entitled to do so and at other times taking the position that there was a shortage of Active Pharmaceutical Ingredient (“API”) for the Products. (Id. ¶¶ 52-54, 75-76, 78-79, 137.)

         In emails to PLD in October 2017, Bion rejected two purchase orders for Ibuprofen because “'there continue to remain issues with API for IBU, etc.'” and then explained that there were “'shortages in raw material'” beyond Bion's control, including the lack of “'any commitments beyond Oct supply of API‘”, that could “'impact [Bion's] ability to fulfill an order'”. (Id. ¶¶ 221.a., 221.b.) In November, after PLD complained of Bion's purchase order rejections, Bion emailed PLD to say once again that there was a shortage of API “'due to circumstances beyond [Bion's] reasonable control'” and that Bion could not fulfill one specific purchase order “'based on the supply situation'”. (Id. ¶¶ 221.c., 221.d.) Later that month, Bion's general counsel, Lavesh Samtani, spoke with PLD's general counsel, Charles Cain, who was in North Carolina at the time, and explained that Bion had not been able to supply PLD with the Products “because of an API shortage, which was out of Bion's control.” (Id. ¶ 221.e.) In an email two days later, Samtani repeated to Cain, in North Carolina at the time, and others that “'due to lack of supply of materials and for reasons out of [Bion's] control”, Bion could not supply Products to PLD. (Id. ¶ 221.f.)

         Yet, according to Patheon's representative, there was no API shortage that impacted Patheon's ability to manufacture all of the Products PLD had ordered, had Bion submitted the orders to Patheon. (Id. ¶¶ 61, 81, 146, 223; id. ¶¶ 56, 80 (suggesting that to the extent there was any minor shortage of API for Patheon, there was API from alternate sources).) When PLD representatives visited Patheon's manufacturing facility on December 1, 2017, they saw “ample quantities of the necessary API to satisfy PLD's orders”, “active manufacturing lines running with both Ibuprofen softgels and Naproxen softgels”, and “large quantities of Ibuprofen softgels and Naproxen softgels packaged and ready for shipping with PLD's address affixed to the pallets stored in Patheon's warehouse.” (Id. ¶ 141.) PLD notified Bion of its observations, and on December 4, 2017, Samtani emailed Cain, who was in North Carolina, that “Bion was making ‘reasonable and good faith efforts to supply [PLD] with all products'”, denied “'withholding any products from PLD'”, and stated that there was “'simply no need for PLD to go to Patheon' to check the status” of its orders. (Id. ¶ 221.h.) PLD relied on these representations when it failed to contact “alternate suppliers” because “an API shortage in the industry” made it “likely that other suppliers would be experiencing the same problem and not be able to fill any orders that PLD might place because the raw materials were not available.” (Id. ¶ 228.)

         In September, Bion began reducing or rejecting PLD's purchase orders for Cetirizine and Loperamide and would not direct or allow Patheon to fill those orders, taking the same position it had with the other Products - that it was entitled to do so under the terms of the Agreements. (Id. ¶¶ 97, 100, 114-117.) Had Bion submitted the orders to Patheon, Patheon could have filled all of PLD's orders. (Id. ¶¶ 102, 120.)

         When Patheon questioned why PLD's orders had fallen, Bion still did not forward the orders to Patheon. (Id. ¶ 61.) Instead, as early as July 2017, Bion began instructing Patheon to focus on making the Products for Bion and not to make them for PLD. (Id. ¶¶ 62, 83, 99, 146.) In September 2017, Bion requested Patheon create new codes and print formats to distinguish Bion's Products from PLD's. (Id. ¶¶ 63, 136.) By January 2018, Bion had received from Patheon for its own use more than 260 million Ibuprofen softgels, 36 million Naproxen softgels, 25 million Cetirizine softgels, and 22 million Loperamide softgels which it was stockpiling at a warehouse in Tennessee. (Id. ¶¶ 64, 83, 99, 119, 225.)

         As a result of Bion's conduct, there was a shortage of Products which caused PLD to lose substantial sales and goodwill. (Id. ¶¶ 65, 68-70, 86, 92, 109, 126, 148, 154, 157; see also id. ¶¶ 103, 121 (alleging that the “substantial shortage of Cetirizine” and “Loperamide softgels” “hindered PLD's ability to meet its contracts with its customers”).)

         PLD has alleged that Bion committed unfair and deceptive trade practices in violation of N.C. Gen. Stat. § 75-1.1 et seq. when it “improperly reduced or rejected PLD's orders for Products”, “failed to order from Patheon 100% of the Products that PLD ordered”, “falsely represented to PLD that there was a shortage of IBU-API and NAP-API in an attempt to justify its actions”, “intentionally withheld finished product from PLD by directing Patheon not to ship Products manufactured for PLD and, without cause, allowing the Products to sit in a warehouse in High Point for many months after they were ready for shipment to PLD”, “sought to create an artificial shortage of . . . Products in the marketplace by refusing PLD's purchase orders”, and “instructing Patheon to re-direct some of the manufacturing capacity . . . to make Products for Bion . . . so that it would have a substantial inventory of products . . . when the . . . Agreements ...


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