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Pharmatech Solutions, Inc. v. Shasta Technologies, LLC

United States District Court, N.D. California, San Jose Division

April 20, 2015




Defendant Shasta Technologies, LLC ("Shasta") seeks dismissal of the first amended complaint ("FAC") under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction and under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted. The Court has considered the briefing and the oral argument presented at the hearing on April 16, 2015. For the reasons discussed below, the motion to dismiss for lack of subject matter jurisdiction is GRANTED, the motion to dismiss for failure to state a claim is DENIED AS MOOT, and the action is DISMISSED for lack of subject matter jurisdiction.


Plaintiff Pharmatech Solutions, Inc. ("Pharmatech") filed the complaint in this declaratory relief action on August 14, 2014 and, pursuant to a stipulation of the parties, filed the operative first amended complaint ("FAC") on February 20, 2015. The FAC alleges the following facts: Defendant Shasta Technologies, LLC ("Shasta") was the owner of a product known as the GenStrip, "a diagnostic test strip to be used in conjunction with diagnostic test meters, i.e., devices that measure a person's blood sugar at any particular point in time." FAC ¶ 5, ECF 28. The GenStrip was manufactured for Shasta by a company called Conductive Technologies, Inc. ("CTI"). Id. In June 2011, Pharmatech entered into an exclusive distributorship agreement for the GenStrip with Shasta and one of Shasta's investors, Broadtree, Inc. ("Broadtree"). Id. ¶ 6.

Shasta marked the GenStrip boxes with the logo of Johnson & Johnson and its subsidiary, Lifescan (collectively, "Lifescan"), along with a photograph of Lifescan's "One Touch" blood monitoring device. FAC ¶ 7. Lifescan, which had not consented to the use of its marks or images on the GenStrip, sued Shasta, Pharmatech, and CTI in this district for violations of the Lanham Act. Id. In May 2013, the district court presiding over that action issued a preliminary injunction enjoining the use of GenStrip boxes bearing the Lifescan logo and One Touch photograph. Id. ¶ 8. As a result, thousands of GenStrip boxes that Pharmatech had ordered and paid for became unusable; Pharmatech had to order 74, 256 replacement boxes. Id. ¶¶ 7-9.

In December 2013, the United States Food and Drug Administration ("FDA") conducted a surprise inspection of Shasta's manufacturing facility in Sherwood, Oregon. FAC ¶ 10. It turned out that the facility was the residential home of one of Shasta's owners and members, Calvin A. Knickerbocker III. Id. The FDA determined that the residence did not qualify as a manufacturing facility. Id. Shasta then told the FDA that the manufacturers of the GenStrip were CTI and Pharmatech. Id. ¶ 11.

Upon hearing about these events, Pharmatech's board of directors held a telephonic meeting on March 5, 2014 to formulate a plan designed to keep the FDA from removing the GenStrip from the market and to keep the GenStrip product "alive." FAC ¶ 12. Pharmatech decided to (1) execute a binding term sheet to purchase the GenStrip and its mark from Shasta; (2) hire a consultant to write and implement a suitable quality control plan meeting all FDA standards and regulations with respect to the GenStrip, to be jointly administered by Pharmatech and CTI; and (3) change Pharmatech's principal executive offices to York, Pennsylvania and register Pharmatech as a foreign corporation authorized to conduct business in Pennsylvania. Id.

On March 20, 2014, Pharmatech, Shasta, and Broadtree executed a written binding term sheet under which Pharmatech agreed to purchase the GenStrip. FAC ¶ 19. On April 21, 2014, Pharmatech entered into a "Quality Control Agreement" with CTI. Id. ¶ 13. Finally, Pharmatech opened offices in York, Pennsylvania and registered as a foreign corporation authorized to conduct business in Pennsylvania. Id. The FDA registered the York, Pennsylvania address as the official facility of Pharmatech. Id.

While Pharmatech was taking these steps to save the GenStrip product, the FDA sent Shasta a warning letter dated April 8, 2014, stating that the FDA's December 2013 inspection of Shasta's facility in Sherwood, Oregon had revealed that Shasta was not compliant with the governing Quality System Regulation. FAC ¶ 15 and Exh. A. Among other things, the warning letter demanded that Shasta take immediate remedial action and voluntarily recall the GenStrip. Id. Shasta did not respond. Id. The FDA subsequently issued a "Worldwide Safety Warning Letter" to users, distributors, physicians, and others, halting the sale, use, and advertisement of the GenStrip. Id. ¶ 16 and Exh. B. The FDA also directed users, sellers, and distributers to return any GenStrips to the original point of sale. Id. Shasta's name and logo appeared on the 74, 256 GenStrip boxes that Pharmatech had ordered to replace boxes bearing LifeScan's name and logo. Id. ¶ 17. Because Shasta no longer can market the GenStrip, Pharmatech believes that it will be required to take back and replace approximately 50, 040 of those 74, 256 GenStrip boxes. Id.

Based upon these allegations, Pharmatech asserts a single claim against Shasta entitled "Declaratory and Injunctive Relief Re The Parties [sic] Binding Written Term Sheet." Shasta moves to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) and failure to state a claim under Rule 12(b)(6).

II. Subject Matter Jurisdiction - Rule 12(b)(1)

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) raises a challenge to the Court's subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). "In civil cases, subject matter jurisdiction is generally conferred upon federal district courts either through diversity jurisdiction, 28 U.S.C. § 1332, or federal question jurisdiction, 28 U.S.C. § 1331." Peralta v. Hispanic Business, Inc., 419 F.3d 1064, 1068 (9th Cir. 2005). The FAC alleges subject matter on the basis of diversity of citizenship.[1] FAC ¶ 1. Diversity jurisdiction lies in "all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between... citizens of different States." 28 U.S.C. § 1332(a)(1). Shasta contends that diversity does not exist because both it and Pharmatech are citizens of California.

"A Rule 12(b)(1) jurisdictional attack may be facial or factual." Safe Air For Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack, the movant asserts that the lack of subject matter jurisdiction is apparent from the face of the complaint. Id. In a factual attack, the movant disputes the truth of allegations that otherwise would give rise to federal jurisdiction. Id. "In resolving a factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment." Id. "The court need not presume the truthfulness of the plaintiff's allegations." Id. Once the moving party has presented evidence demonstrating the lack of subject matter jurisdiction, the party opposing the motion must present affidavits or other evidence sufficient to establish subject matter jurisdiction. Id.

Shasta mounts a factual attack here, because although the FAC suggests that it and Pharmatech are citizens of different states, see FAC ¶¶ 3-4, Shasta asserts that in fact both companies are citizens of California. The FAC alleges that Shasta "is an Oregon limited liability company, with its principal place of business at 16923 SW Richen Park Circle, Sherwood, Oregon." FAC ¶ 4. While this allegation suggests that Shasta is an Oregon citizen, a limited liability company is "a citizen of every state of which its owners/members are citizens." Johnson v. Columbia Prop. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). One of Shasta's owners/members, Calvin ...

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