Third Circuit Revives “Exclusive Generic” Contract Claim

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.


30 thoughts on “Third Circuit Revives “Exclusive Generic” Contract Claim

  1. 30

    ET, assuming that was true, wouldn’t the District Court have referred the question of interpretation to or transfer the breach cases to that court?

  2. 29

    Correct LB. My assumption was that there was federal question jurisdiction because it was a patent infringement action. In which case, a standard clause in most of settlement agreements is to have the court retain jurisdiction to enforce its terms.

  3. 28

    LB, I think there are two closely related issues:

    1) who is the real party in interest, and

    2) where is RPI management.

    The courts seem to recognize that some named parties are not RPI for one reason or another. In this case SK B was “dissolved.” It continued to formally exist, but its assets were transferred by law to a Delaware LLC. That Delaware LLC, GSK LLC, is the RPI whose citizenship must be determined.

    Under Hughes, a corporation’s principle place of business is the location of the HQ that actually manages. That, in the case of GSK LLC, is England.

    Here though, the rules pertaining to corporations do not apply because the new entity is not a corporation, but an LLC. According to Carden, its citizenship is determined by its owners citizenship. GSK LLC is owned by one one company, GSK Holdings. GSK’s board meetings are held in Delaware, but its real HQ was in the UK.

    Given all the case law, I would say that SK B is a citizen of the UK for diversity purposes.

  4. 24

    Actually, it is quite possible that diversity jurisdiction is irrelevant. If this was a settlement agreement from litigation, in all likelihood the district court retained jurisdiction to enforce the terms of the settlement.

  5. 22

    Actually, it appears that MM posted the case law, rather than Ned. I get those two confused, sometimes…

  6. 21

    That full comment starts off with this lead-in:
    ” could it be that the courts look to who really controls?”

    You’re absolutely right, it does, and I did miss it, perhaps because the case law he went on to quote said nothing about control.

    That said, Ned has posted some interesting case law that is relevant to “control,” and that seems to illustrate that this issue can get complicated in a hurry. However, I still think he’s neglecting the issue that a corporate entity can have multiple citizenships for diversity purposes.

  7. 20

    Crazy, SK Beecham is dissolved into GSK LLC of Delaware. Its sole owner is GSK Holdings. That entity conducts its board meeting in Delaware.

    The majority opinion held that Delaware was the citizenship of GSK Holdings.

    The dissent would have held that Hertz controls, and that the real management was in the UK.

    But, under Hertz, it seems clear that management of GSK LLC is in England so that would be the citizenship of GSK if it were a corporation.

  8. 19

    MM, it should be pointed out that the SK Beecham corporate entity is dissolved and only exists nominally. The entity was dissolved into GSK LLC of Delaware. Under Carden, an LLCs citizenship is that of its owners. Here, GSK Holdings.

    GSK holdings conducts board meeting in Delaware. But, as the dissent points out, the real management direction is coming from London.

    The right answer was the obvious answer from he get go. GSK is an English company.

  9. 18

    Leo, take a look at the opinion linked by MM below. Also read Hertz Corp. v. Friend, 130 S. Ct. 1181 – Supreme Court 2010 that actually holds what I suggest — the principle place of business is where the corporate brain is located regardless of nominal designations. Where is the HQ that actually manages.

    Here, that is London. I think the dissent in MM linked case is correct in that it does not give full weight to Hertz.

  10. 17


    Your reply of “I was responding to the case law that Ned quoted, which says that the point is whether a party has a “real interest.” If Ned has a different point, I’ll let him make it.” quite misses the mark.

    You might try to read his comment in its entirety in order to reply to the point that Ned had (instead of the different one you did reply to). That full comment starts off with this lead-in:

      could it be that the courts look to who really controls?

    you letting him do something he has already done is mighty generous of you, but it looks like you missed the point he was actually attempting to make.

  11. 16

    Ummm, not sure of the relevance of that. The citizenship of two corporations (not LLCs) on opposite sides of the case is at issue here — if Dennis is right that those two corporations both have their principal place of business in Pennsylvania, there is no complete diversity.

    The rule that the cited case was applying is the long-held (but often overlooked by lawyers) rule that LLCs and partnerships’ citizenship has nothing to do with their principal places of business but is determined solely by the citizenship of their members/partners, with the LLC/partnership being a citizen of EVERY state in which it has a member/partner (of course, if a member/partner is a corporation then you look to the principal place of business of the member/partner; if it is an LLC, you keep drilling down until you get to an individual or a corporation).

  12. 15

    anon, I think so.  It does look like the SC does seem to rely on the “real party in interest” to determine diversity when nominal parties are named. 


  13. 14

    Except Crazy, see this:

    link to

    I posted a link to the case down below. You probably will not read it. The summary at the above link (thank you, summer intern!) is a much easier read:

    Issue Addressed: For purposes of diversity jurisdiction, should a holding company’s citizenship be defined by the activities of its limited liability company (LLC) subsidiary given that a holding company’s primary activity is to own and manage, not to operate its assets.

    Short Answer: No. The Circuit Court reaffirmed precedent dictating that the citizenship of a LLC is determined by the citizenship of the LLC’s members, not by the LLC’s activities. The Circuit Court concluded that GSK Holdings’ principal place of business is in Wilmington, DE where its board of directors reaches consensus-based investment resolutions regarding its subsidiary, GSK LLC.

    The ‘nerve center’ test endorsed in Hertz Corp. v. Friend, 559 U.S. 77 (2010), dictates that a corporation’s citizenship, for purposes of diversity jurisdiction, requires the identification of the single place that is the corporation’s actual center of direction, control, and coordination.

  14. 13

    Looks like the Third Circuit Court of Appeals addressed the lack of diversity issue in an appeal from a Pennsylvania district court case (Johnson v. SmithKline Beecham) brought against GSK LLC fairly recently (this past June!). It’s an incredibly boring opinion to slog through (and that’s coming from someone who enjoys civil procedure):

    link to

    The holding was that there was diversity jurisdiction because GSK’s “nerve center” was in Delaware. The concurring judge agreed with the result but would have found the “nerve center” in the UK.

    Are there some facts in play here that would give the district court judges in this case a reason to disagree with the findings in Johnson v. SmithKline Beecham (3d Circuit; 2013)?

  15. 11

    I was responding to the case law that Ned quoted, which says that the point is whether a party has a “real interest.” If Ned has a different point, I’ll let him make it.

  16. 10

    In fact, I am pretty sure the Third Circuit should sua sponte consider it now. I assume the mandate has not issued yet so it still has jurisdiction to consider its own jurisdiction. Its opinion should be vacated if there is no SJ jurisdiction.

  17. 9


    Don’t you think that Ned’s point is not whether the U.S. unit has a real interest, but rather, which entity has the controlling interest?

  18. 7

    Come on, Ned. Don’t you think the U.S. unit of GSK has a “real interest” in a suit involving distribution in the U.S. of a product patented in the U.S.?

  19. 6

    Dennis, when looking at the issue of principle place of business, could it be that the courts look to who really controls? Take a look at the dissent in Carden v. Arkoma Assoc. 494 US 185, which said, in part,

    “Since the early 19th century, one of the benchmarks for determining whether a particular party among those involved in the litigation must be counted for purposes of diversity jurisdiction has been whether the party has a “real interest” in the suit or, in other words, is a “real party” to the controversy. See 6 C. Wright & A. Miller, Federal Practice and Procedure § 1556, p. 711 (1971) (well settled “citizenship rule testing diversity in terms of the real party in interest is grounded in notions of federalism”). See generally Note, Diversity Jurisdiction over Unincorporated Business Entities: The Real Party in Interest as a Jurisdictional Rule, 56 Texas L. Rev. 243, 247-250 (1978). In Wormley v. Wormley, 8 Wheat. 421 (1823), for example, the Court stated:

    “This Court will not suffer its jurisdiction to be ousted by the mere joinder or non-joinder of formal parties; but will rather proceed without them, and decide upon the merits of the case between the parties, who have the real interests before it, whenever it can be done without prejudice to the rights of others.” Id., at 451 (footnote omitted).
    See also Wood v. Davis, 18 How. 467, 469 (1856) (“It has been repeatedly decided by this [C]ourt, that formal parties, or nominal parties, or parties without interest, united with the real parties to the litigation, cannot oust the federal courts of jurisdiction . . .”).”

  20. 5

    Doesn’t matter? But the complaint and the Circuit Court opinion refer the entire group as GSK, and that group has its HQ in England.

  21. 2


    At a minimum, I have a hard time understanding how this British? corporation could have its principle place of business in Pennsylvania. Do a quick search and GSK identifies its HQ in Brentford, England.


  22. 1

    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.

    Nice catch.

    I suspect GSK will bring this issue to the judges’ attention even if the judges don’t bring it up themselves.

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