Musical Chairs and Corporate Love Triangles

by Dennis Crouch

Amyndas Pharm., S.A. v. Zealand Pharma A/S, 21-1781, — F.4th — (1st Cir. Sept. 2, 2022) [Decision]

Before getting into the decision, I’ll first post my DALL-E art entitled “corporate love triangle.”

The First Circuit appellate court described this case as a game of “musical chairs”. When the music stopped “one firm [was] left out in the cold.”  I might think of it as a pair of ongoing secret love affairs that finally resulted in a jilted lover.  Old models of a love triangle was really more of a “V” — a rivalry between two potential suitors.  But, today’s pansexual environment allows for truer triangle relationships.  In this case it is all a bit more mundane. The three players are Amyndas, Zealand, and Alexion–all pharameceutical research companies focusing on auto-immune inhibition.

Here, Amyndas (the one left out) had shared confidential information with both Zealand and Alexion (subject to contractual limitations).  Later, those two companies formed an official partnership to develop a C3-binding protein (the same topic for which Amyndas had shared data).  Zealand’s patent applications also published relating to the same topic. At that point, Amyndas sued–alleging breach of the Confidential Disclosure Agreements (CDAs); misappropriation of trade secrets; and conspiracy to use misappropriated information.

The district court cut much of the case short — dismissing the case against Zealand based upon a forum-selection-clause within their CDA.  That agreement stated that “any dispute arising out of this Agreement shall be settled in the first instance by the venue of the defendant.” Here, Zealand Pharma is a Denmark company, and the district court determined that proper venue for the case is therefore in Denmark.  On appeal, the plaintiff pointed-out that the Zealand has a presence in both Denmark and Massachusetts.  This argument makes sense if you look at the federal law of venue which basically finds proper venue in any court with personal jurisdiction over the defendant.  28 U.S.C. 1391(b)-(d).  You’ll note that Section 1391(b) states that proper venue is a location where the defendant “resides.”  This seemingly narrow venue statement is blown-up by the definition in Section 1391(c)–a company “shall be deemed to reside … in any judicial district in which such defendant is subject to the court’s personal jurisdiction.” Id.

But, the appellate court considered the law as potentially instructive for construing the “venue of the defendant” as used in the contract.  But, the court concluded that its interpretation should be narrower than Section 1391 since applying the venue law “would inevitably lead to the conclusion that Zealand Pharma potentially could be sued in virtually any jurisdiction” and thus render the venue clause of the contract “largely superfluous.” Amyndas Pharm. (1st Cir. Sept. 2, 2022).  What the court did was stick with the notion that venue=residence, but then use a more natural definition of residence to be limited only to the corporate home (as is done now in personal jurisdiction contexts).

Zealand Pharma A/S is the Denmark company, its corporate family member and co-defendant “Zealand US” is a US company with a HQ in Boston, and so the lawsuit was clearly in its venue.  But, Zealand US had not itself signed the CDA and so the court refused to give any weight to its corporate affiliate’s location. “The forum-selection clause points unerringly to Zealand Pharma, not to Zealand US.”

In focusing on Denmark, the court repeats that “At the time the CDAs were signed, Zealand Pharma’s residence could only have been Denmark” and consequently limited the forum selection clause venue to Denmark as well.  One problem with the court’s statements here is the implicit suggestion that venue is frozen in stone at the moment of contracting. Some contracts do take that approach, but typically by expressly naming a particular venue (such as “New York”).  On the other hand, my reading of this contract would imply that the “venue of the defendant” is determined at the point when a lawsuit is filed.  At the time of contracting, Zealand Pharma had not yet been restructured to also form Zealand US.  In my mind, that corporate transformation could be seen as expanding the venue if the new US version was a carve-out or split that took on some of the  rights and obligations of the old company.  In any event, the appellate court affirmed the lower court’s finding that the contract required the lawsuit to be filed in Denmark and so dismissal of the Massachusetts claims were proper.   The appellate panel also pulled out its thesaurus to conclude that Amyndas arguments were “struthious” and that any further consideration would be “supererogatory.”

Trade Secrecy Claim Abroad: Still continuing the argument, Amyndas argued that the Defend Trade Secrets Act (DTSA) created a public policy that “guarantees a federal forum for trade secret theft claims.”  Prior to the DTSA, ordinary trade secret claims were based only on state law and only in Federal Court on diversity or pendant jurisdiction.  But, the DTSA gave Federal District Court original jurisdiction over trade secret actions.  On appeal, the 1st Circuit found no evidence “that the DTSA was meant to supersede the forum-selection decisions of sophisticated parties.” Id. The court concluded by noting the “sockdolager” is the absence of any public policy reason why Amyndas should be able to litigate its case in the US. The court recognized that its decision “Gives Zealand Pharma home-court advantage and a more favorable choice of law for the trade secret dispute that has arisen.”  Notably, Denmark does not allow the extent of discovery permitted by the US Federal Courts.  But, that is the way contract law goes: “Those regrets may coalesce into a bitter lesson about looking at a nascent partnership through rose-colored glasses.”

Following the district court opinion, Amyndas decided to move forward on a second front and sued Zealand Pharma in Denmark in January 2022.  In addition, it has obtained a stay of the contested patents from the European Patent Office.

On remand in the US litigation, the case is still pending against Zealand US and Alexion.  But, the key allegations were against Zealand Pharama, and so the case may well fizzle out.

I’ll note – normally an appeal is only allowed once a case is finally concluded. Here, however, the district court was careful to issue a partial final judgment under R. 54(b) that dismissed Zealand Pharma and indicated that portion of the case was ripe for appeal.

5 thoughts on “Musical Chairs and Corporate Love Triangles

  1. 3

    nice pic D. a bit rough.

    1. 3.1

      Both fascinating and repellant. Exactly what I have come to expect from DALL-E.

  2. 2

    >The appellate panel also pulled out its thesaurus to conclude that Amyndas arguments were “struthious”

    Definition of struthious: of, relating to, or resembling the ostrich or related ratite birds

    Ratites are classified into four different orders and five families. The common ratite species include ostriches, emus, rheas, cassowaries and kiwis.

    Ratites are native to most of the continents and a few large islands of the southern hemisphere (ostriches in Africa, rheas in South America, emus in Australia, cassowaries in Australia and New Guinea, kiwis in New Zealand.

    The appellant court was overbroad. Kiwis are the only ratite birds native to New Zealand.

    1. 2.1

      haha, I tortured my children with a regular reading of B. Franklin’s autobiography. hahahaha, made em take notes by providing a notepad and a pen. Judge yourself…… how far can you get into that tome, without whipping out a dictionary….. just sayin….. Posit… ya have to pass the gauntlet of knowing the meaning of EVERY word in ole Ben’s autobiograpy, otherswise, somebody from 300 yrs ago has ya one upp’d since b4 ya was a twinkle in an eye.

  3. 1

    I wonder whether intent biased on actions, has a role, in view of Sup. Ct. case Asahi

    No signatory by a bonafide, actual legal entity, on a CDA…. blundercity, eek !

    Reminder, always make sure of what’s obvious from the above !!!!! hahahahaha, I’ve seen sooo many “wrong” contracts, as you too no doubt.

    I’ve fired clients over stuff like this, when their insistences are WRONG. Let em walk

    Where’s the Artists ? Need a good graphic of chairs, triangles, a city backdrop, and a Cupid shooting an arrow at the Lovers !

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