Chartwell Therapeutics Licensing, LLC v. Citron Pharma LLC

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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CHARTWELL THERAPEUTICS

LICENSING, LLC,

Plaintiff,

MEMORANDUM AND ORDER

v. 16-CV-3181 (RPK) (CLP)

CITRON PHARMA LLC; and RISING

PHARMA HOLDINGS, INC.,

Defendants.

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RACHEL P. KOVNER, United States District Judge:

Plaintiff Chartwell Therapeutics Licensing, LLC and defendant Citron Pharma LLC have

been litigating before this Court since 2016. The dispute revolves around a deal in which Citron

agreed to purchase pharmaceutical drugs from plaintiff. Late last year, plaintiff filed an amended

complaint that introduced a new theory of liability, a new cause of action, and the new defendant

Rising Pharma Holdings, Inc. See First Amended Complaint (“Amended Complaint” or “FAC”)

(Dkt. #185). Citron has responded by moving to strike or dismiss the Amended Complaint, or, in

the alternative, to preclude plaintiff’s newly alleged theories. And the new defendant, Rising

Pharma, has moved to dismiss or, in the alternative, to sever and stay the claims against it. Both

defendants also ask that I either strike or disregard a declaration that plaintiff submitted

in opposition to their pending motions challenging the Amended Complaint. For the reasons stated

below, (i) Citron’s motion to strike or dismiss the Amended Complaint is GRANTED IN PART

and DENIED IN PART; (ii) the claims against Rising Pharma are SEVERED and

TRANSFERRED; and (iii) defendants’ motions to strike or disregard plaintiff’s declaration are

GRANTED IN PART and DENIED IN PART.

BACKGROUND

I. Factual Background

The following factual allegations are taken from the Amended Complaint and documents

incorporated in the Amended Complaint by reference. For the purposes of the pending motions to

dismiss, I assume all factual allegations in the Amended Complaint are true.

The Term Sheet

Plaintiff is a pharmaceutical manufacturer in the state of New York. FAC ¶ 1.

At an undisclosed time, plaintiff obtained a license from the U.S. Food and Drug Administration

to manufacture a generic version of the antibiotic drug Doxycycline Hyclate (“Doxy”). Id. ¶¶ 13-

14. This acquisition attracted the attention of Citron, id. ¶ 15, a pharmaceutical developer,

marketer, and distributor in the state of New Jersey, id. ¶ 2. After discussions between plaintiff

and Citron in 2014, the parties orally agreed that Citron would buy specific quantities of Doxy

from plaintiff. Id. ¶ 15. Citron also agreed to pay plaintiff a percentage of the profits it earned

from reselling Doxy to third parties. Ibid.

On July 11, 2014, Citron sent plaintiff a written term sheet and a purchase order (“Initial

Purchase Order”). Id. ¶¶ 16-17. The purchase amount was $3,294,750. Id. ¶ 16. In an email to

Citron, plaintiff disputed the proposed profit-sharing calculation methodology. Id. ¶ 17. Plaintiff

therefore crossed out the example calculation on the sheet and then executed it as modified by

both the email and the crossed-out portion of the term sheet. Ibid. Citron responded by

transferring $3,294,750 by wire to plaintiff on July 14, 2014. Id. ¶ 19. At “a later date,” Citron

also delivered to plaintiff a signed version of the Term Sheet. Id. ¶ 20.

Shortly after paying plaintiff in full against the Initial Purchase Order, Citron sought

to modify the Term Sheet by adjusting the bottle count size of some of the Doxy. Id. ¶ 23. Plaintiff

agreed to the change. Ibid. The parties formalized this modification through a new purchase order

on July 16, 2014. Id. ¶ 24. Plaintiff did not agree to sell Citron any other Doxy product besides

those in the modified term sheet (“Term Sheet”). Id. ¶ 26.

The Term Sheet contained several other significant provisions. First, Citron agreed

to provide plaintiff a twelve-month rolling forecast of its anticipated purchases. Id. ¶ 27. In each

twelve-month forecast, the projection for the first three months would be binding on the parties.

Ibid. Second, Citron agreed to account for and pay plaintiff the proper profit share on a quarterly

basis. Id. ¶ 29. Third, plaintiff was granted the right to audit Citron’s books and records to verify

these quarterly reports and payments. Id. ¶ 31. This right was generally limited to twice in each

twelve-month period. Id. ¶ 32. In the event that Citron underpaid plaintiff by 5% or more, Citron

would be required to cover the costs of the audit and pay plaintiff interest on the underpayment at

an annual rate of 18%. Ibid. Finally, the Term Sheet contemplated a long-term agreement

regarding the Doxy sales that the parties could execute later. Id. ¶ 44. Any such long-term

agreement would apply to preliminary purchase orders under the Term Sheet. Ibid. If no

agreement was signed, the terms in the Term Sheet would bind the parties. Ibid.

The Breach

As early as the fourth quarter of 2014, Citron was in breach of the Term Sheet because it

underreported profits it owed to plaintiff. Id. ¶ 33. For example, Citron took a deduction in

that quarter for a $1.5 million shelf stock adjustment granted to Walmart Stores (“Walmart SSA”).

Id. ¶ 34. But the Walmart SSA was in fact granted in the first quarter of 2015 and should not have

been deducted in the fourth quarter of 2014. Id. ¶ 35. Citron admitted this improper accounting

during discovery. Id. ¶ 36. Another breach occurred in February 2015, when Citron used

the wrong method to calculate plaintiff’s profit share. Id. ¶ 37. Plaintiff noticed and corrected this

error. Id. ¶ 38. By the end of 2014, Citron owed more than $1.7 million under the profit-sharing

agreement. Id. ¶ 39.

In April 2015, Citron started asking plaintiff to (i) reduce the prices in the Term Sheet and

(ii) give Citron a rebate for purchased Doxy that remained unsold as of May 1, 2015. Id. ¶ 40.

Plaintiff did not agree to the changes. Id. ¶ 41. Plaintiff expressed willingness to consider adopting

a binding, long-term agreement on different terms than those in the Term Sheet—but only after

an audit. Id. ¶ 42. Citron acknowledged this position. Id. ¶ 43. After that acknowledgment,

plaintiff continued to sell Doxy to Citron and invoiced Citron in accordance with provisions in

the Term Sheet. Id. ¶¶ 44-45. Citron contemporaneously acknowledged receiving the invoices,

and did not object to any of the invoices until after this lawsuit began. Id. ¶¶ 46-48.

In fall 2015, plaintiff began an audit because it suspected that Citron was underreporting

and underpaying the profit share owed to plaintiff. Id. ¶¶ 49, 51. Plaintiff retained an accounting

firm to help with the audit. Id. ¶ 50. Citron refused to provide complete access to the books and

records deemed necessary for the audit by the firm. Id. ¶ 52. Citron then conditioned the audit’s

continuation on an agreement by plaintiff to accept the return of certain Doxy shipments. Id. ¶ 53.

Despite these obstructions, discovery in this action later revealed that Citron had underpaid

plaintiff under the Term Sheet. Id. ¶ 54. Citron owed (i) $8,221,759 in profit shares from Doxy

sales it made to third parties and (ii) $6,290,753 from the Doxy purchases it had made from

plaintiff, not including interest. Ibid. Up to the filing of the Amended Complaint, plaintiff met its

obligations under the Term Sheet. Id. ¶ 55.

The Sale of Citron’s Assets to Aceto Corporation

In December 2016, Citron sold substantially all of its assets to Aceto Corporation. Id. ¶ 61.

Aceto is an international pharmaceutical marketing, sales, and distribution company. Ibid.

The sale was formalized in a Product Purchase Agreement (the “Citron PPA”). Id. ¶ 61. Aceto

paid a total of $462 million under the Citron PPA. Id. ¶ 62. Citron received $270 million in cash

up-front, as part of the deal. Ibid. Aceto, in turn, received more than 50,000 units of Doxy that

plaintiff had originally sold to Citron. Id. ¶ 63. Aceto resold those Doxy units to Citron’s

customers. Id. ¶ 64.

The Bankruptcy Action

In February 2019, Aceto and its subsidiaries filed for Chapter 11 bankruptcy in the U.S.

Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). Id. ¶ 66; see In re Tri

Harbor Holdings Corporation (f/k/a Aceto Corporation), et al., No. 19-13448-VFP (Bankr. N.J.

Feb. 19, 2019) (the “Bankruptcy Action”). Several Aceto subsidiaries asked the Bankruptcy Court

to approve and authorize a sale of all or substantially all of their assets to Shore Suven Pharma

Inc., now called Rising Pharma. See Bankruptcy Action, No. 19-13448-VFP (Bankr. N.J. Mar. 8,

2019) (Bankr. Dkt. #109). The Bankruptcy Court ultimately approved a sale between those parties

(the “Sale Order”). Baker Decl. in Supp. Rising Pharma’s Mot. to Dismiss (“Baker Decl.”), Ex.

C (Dkt. #211-3). The terms of the sale were set out in an Asset Purchase Agreement (the

“Bankruptcy APA”). Ibid. The Bankruptcy Court retained exclusive jurisdiction to interpret,

implement, and enforce the terms of both the Sale Order and the Bankruptcy APA.

Sale Order ¶ 49.

According to plaintiff, Rising Pharma agreed in the Bankruptcy APA to purchase Citron’s

assets and assume all of Citron’s obligations and liability connected to this action. FAC ¶ 67.

To support that claim, plaintiff furnishes a copy of the Bankruptcy APA, which is incorporated by

reference into the Amended Complaint. A provision in the Bankruptcy APA states that Rising

Pharma assumed “the Chartwell Liability.” See Bankruptcy APA § 1.3(f), at 5. The “Chartwell

Liability” is defined in the Bankruptcy APA as “all [l]iabilities arising from and in connection with

the matter styled as Chartwell Therapeutics v. Citron Pharma LLC, No. 1:16-cv-03181

(E.D.N.Y.), and the related liabilities under the Citron PPA.” Id. § 9.17, at 59.

II. Procedural Background

On June 8, 2016, plaintiff filed a complaint against Citron in the Supreme Court of New

York, Kings County. Notice of Removal ¶ 1 (Dkt. #1). The Complaint contained five causes of

action: (i) breach of contract, (ii) entitlement to payment for goods sold and delivered, (iii) unjust

enrichment, (iv) quantum meruit, and (v) denial of a contractual right to audit. Notice of Removal,

Ex. A ¶¶ 13-43 (Dkt. #1-1). Citron removed the lawsuit to this Court on June 16, 2016. Notice of

Removal (Dkt. #1).

After years of discovery, Citron moved for leave to amend its answer on September 28,

2018. See Citron’s Mot. to Amend (Dkt. #117). Magistrate Judge Cheryl L. Pollak granted

Citron’s motion, over plaintiff’s opposition, on September 4, 2019. See Sept. 4, 2019 Order

(Dkt. #181). Citron filed its amended answer five days later. See Citron’s Amended Answer

(Dkt. #182).

During a telephone conference on September 19, 2019, plaintiff informed Magistrate Judge

Pollak that it was considering amending its complaint in response to Citron’s amended answer.

See Transcript of Proceedings Held on September 19, 2019, at 6-7 (Dkt. #183). Plaintiff asked

Magistrate Judge Pollak to extend the default deadline to amend under Federal Rule of Civil

Procedure 15(a)(1). Ibid. Magistrate Judge Pollak granted the extension request. Ibid.

Plaintiff filed the Amended Complaint on October 4, 2019. It contained new allegations,

joined Rising Pharma as a party, and replaced the cause of action for goods sold and delivered

with one for failure to satisfy an account stated. See FAC ¶¶ 3, 11, 33-39, 46-48, 61-67, 76-87,

94-95, 102-03, 108-111. The Amended Complaint also contained allegations involving the time

period after the filing of the initial complaint. The new allegations as to Citron relate to (i) removal

and jurisdiction, id. ¶¶ 5-10; (ii) the Citron PPA, id. ¶ 2; (iii) Citron’s conduct after the filing of

this lawsuit, id. ¶¶ 46-48, 54; (iv) the sale of Citron to Aceto and the Bankruptcy Action, id. ¶¶ 56-

67; and (v) damages, id. ¶¶ 74-75, 77, 82-85, 87, 95, 103, 108-09, 111. As to Rising Pharma,

plaintiff added (a) general descriptions of Rising Pharma and the Bankruptcy Action, id. ¶ 3; (b) a

statement of jurisdiction, id. ¶ 11; and (c) allegations that Rising Pharma assumed liability to

plaintiff in the Aceto Bankruptcy Action, id. ¶¶ 66-67, 76, 86, 94, 102, 110.

Citron opposed the amendment, arguing both that plaintiff did not properly seek leave of

the court before filing the Amended Complaint and that it was premature to join Rising Pharma.

See Citron’s Ltr. to M.J. Pollak (Dkt. #187). Magistrate Judge Pollak rejected these arguments,

holding that plaintiff was entitled to amend its complaint as of right under Rule 15(a)(1)(B) after

Citron filed its Amended Answer. Nov. 19, 2019 Order at 5-7 (Dkt. #198). Nevertheless,

Magistrate Judge Pollak stated that defendants could still object to Citron’s joinder on grounds of

bad faith or prejudice and could seek dismissal or summary judgment as to any of the claims in

the Amended Complaint. Id. at 7-8.

Although the defendants did not file any Rule 72 objections to Magistrate Judge Pollak’s

rulings, they later challenged the Amended Complaint on different grounds. Rising Pharma filed

a motion to dismiss, or, in the alternative, to sever and stay the claims against it. See Mem. of Law

in Supp. of Rising Pharma’s Mot. to Dismiss or in the Alternative, to Sever and Stay (“Rising

Pharma’s Dismissal Memo”) (Dkt. #212). Citron moved to dismiss or strike the Amended

Complaint. See Mem. of Law in Supp. of Citron Pharma LLC’s Mot. to Dismiss and/or Strike

(“Citron’s Dismissal Memo”) (Dkt. #214-1). Plaintiff opposed both motions with an opposition

brief and a declaration that attached several exhibits. See Pl.’s Mem. of Law in Opp. to Defs.’

Mots. to Dismiss (“Plaintiff’s Opposition”) (Dkt. #216); Pl.’s Decl. in Opp. to Defs.’ Mots. to

Dismiss (the “Declaration”) (Dkt. #215). Both Plaintiff’s Opposition and the Declaration

introduced new allegations. The exhibits attached to the Declaration included (i) the Term Sheet

and related emails, (ii) the Citron PPA, (iii) an excerpt of the deposition of Citron’s Chief

Executive Officer, (iv) a December 2017 letter from Citron’s counsel to plaintiff’s counsel, and

(v) an excerpt of Rising Pharma’s schedules submitted to the Bankruptcy Court. In response,

defendants moved to strike the Declaration on March 11, 2020. See Mem. of Law in Supp. of

Citron Pharma LLC’s Mot. to Strike (Dkt. #219); Mem. of Law in Supp. of Rising Pharma’s Mot.

to Strike (Dkt. #221). On August 31, 2020, I issued an order to show cause why the claims against

Rising Pharma should not be transferred to the District of New Jersey under 28 U.S.C. § 1404(a).

See Aug. 31, 2020 Order. The parties submitted letters on that question on September 14, 2020.

See Dkts. #226-31.

DISCUSSION

Broadly speaking, this decision reaches four conclusions. First, plaintiff was entitled to

amend its complaint to add new allegations and join Rising Pharma to this action. Second, the

claims against Rising Pharma should be severed and transferred to the District of New Jersey.

Third, while it is not appropriate to strike Plaintiff’s Opposition or Declaration, I will disregard

any new factual allegations raised in those papers when deciding the pending motion to dismiss.

Finally, plaintiff’s unjust enrichment and quantum meruit claims are dismissed.

I. Plaintiff Was Entitled to Amend Its Complaint to Include New Allegations and

Defendant Rising Pharma

Citron moves to strike or dismiss the Amended Complaint because plaintiff belatedly

introduced a new theory of liability, a new cause of action, and a new defendant. See Citron’s

Dismissal Memo 2, 11-16. Although Magistrate Judge Pollak already denied a separate motion to

strike the Amended Complaint (Dkt. #198 at 5-6), Citron’s new motion raises novel arguments

concerning prejudice and undue delay. These novel arguments can be grouped into two categories.

First, Citron argues that plaintiff should not be permitted to add the new allegations and the new

cause of action related to the period before the filing of the Complaint. Second, Citron argues that

plaintiff should not be permitted to join Rising Pharma to the action after several years of litigation.

Plaintiff Was Entitled to Amend the Complaint to Include New Allegations

and a New Cause of Action

Citron argues that plaintiff should not have amended its complaint to add allegations that

Citron breached the Term Sheet through the Walmart SSA and a claim for failure to satisfy an

account stated. See Citron’s Dismissal Memo 11-16. As explained below, Citron’s arguments are

unpersuasive because plaintiff’s amendments were made as of right.

Pre-trial amendments to pleadings are governed by Federal Rule of Civil Procedure 15(a).

See Rachman Bag Co. v. Liberty Mut. Ins. Co., 46 F.3d 230, 234 (2d Cir. 1995). That rule describes

two types of related pleadings relevant here:

 First, a pleading “to which a responsive pleading is required.” Fed. R. Civ. P.

15(a)(1)(B). An example of this type of pleading is a complaint. See id. at 7(a)(1);

GEOMC Co., Ltd. v. Calmare Therapeutics Inc., 918 F.3d 92, 101 n.14 (2d Cir.

2019); Allen ex rel. Allen v. Devine, 726 F. Supp. 2d 240, 245 (E.D.N.Y. 2010).

 Second, a “responsive pleading.” Fed. R. Civ. P. 15(a)(1)(B). An example of this

type of pleading is an answer. See ISC Holding AG v. Nobel Biocare Fin. AG, 688

F.3d 98, 112 (2d Cir. 2012) (citing Fed. R. Civ. P. 7(a), 12(a)).

Under Rule 15(a)(1)(B), a party is entitled “once” to amend a pleading “to which a responsive

pleading is required” within 21 days after being served the opposing party’s “responsive pleading.”

Fed. R. Civ. P. 15(a)(1)(B). This rule governs regardless of whether the responsive pleading being

served is the original version of the responsive pleading or an amended version, because the latter

supersedes the former, In re Crysen/Montenay Energy Co., 226 F.3d 160, 162 (2d Cir. 2000) (“It is

well settled that an amended pleading ordinarily supersedes the original and renders it of no legal

effect.”). See 6 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1483

(3d ed. 2004) (“Although Rule 15(a) limits a pleader to one amendment without leave of court

within specified time periods, the right may be ‘revived’ when another party amends a pleading.”);

see also Lucente v. Int’l Bus. Machines Corp., 310 F.3d 243, 260 (2d Cir. 2002) (stating that courts

may not deprive parties of the right to file responses to amended pleadings); Neibert v. Computer

Scis. Corp., No. 1:12-CV-02277-SCJ, 2013 WL 12204332, at *2 (N.D. Ga. Mar. 20, 2013)

(“In this action, Plaintiff filed an amended complaint on November 1, 2012, 15 days after being

served with Defendant’s amended answer. Because Plaintiff had not previously amended his

complaint, Plaintiff’s amended complaint properly complies with Rule 15(a)(1)(B).”).

Here, plaintiff was entitled under Rule 15(a)(1)(B) to add new allegations and a new cause

of action to its complaint. Plaintiff filed its original complaint in 2016, see Notice of Removal,

Ex. A (Dkt. #1-1), which qualified as a pleading “to which a responsive pleading is required.”

See Fed. R. Civ. P. 7(a)(1); Krasner v. Episcopal Diocese of Long Island, 328 F. Supp. 2d 367,

371 (E.D.N.Y. 2004). Citron filed a “responsive pleading” on September 9, 2019 in the form of

an amended answer. Citron’s Amended Answer (Dkt. #182). The filing of this amended answer

revived plaintiff’s right to amend its complaint, see 6 Charles Alan Wright & Arthur R. Miller,

Federal Practice and Procedure § 1483 (3d ed. 2004), and plaintiff exercised that right in a timely

fashion on October 4, 2019, see Sept. 19, 2019 Minute Entry; Sept. 19, 2019 Hr’g Tr. at 6-7

(Dkt. #183) (extending plaintiff’s deadline to amend as of right to October 4, 2019). Therefore,

plaintiff’s amendment of the complaint to add new allegations and a new cause of action was

authorized by Rule 15(a)(1)(B).

Citron nevertheless argues that plaintiff’s amendments came unduly late, and prejudiced

Citron, because they were added three years into the litigation. See Citron’s Dismissal Memo 11-

16. But a plaintiff’s right to amend its complaint under Rule 15(a)(1) is “absolute.” Gaming

Marketing Solutions, Inc. v. Cross, 528 F. Supp. 2d 403, 406 (S.D.N.Y. 2007) (quotations omitted);

see In re Agent Orange Product Liability Litigation, 517 F.3d 76, 103-04 (2d Cir. 2008) (holding

that the district court erred in denying leave to amend because plaintiffs “were entitled to amend

their complaint as a matter of right without leave of the district court”); see also Gosain v. State

Bank of India, 414 Fed. App’x 311, 315 (2d Cir. 2011). The cases that Citron invokes in support

of the proposition that leave to amend may be denied, see Citron’s Dismissal Memo 12-13, address

how a court should exercise its discretion when plaintiff does not have an automatic right to amend

its complaint. See, e.g., Tokio Marine & Fire Insurance Co. v. Employers Insurance of

Wausau, 786 F.2d 101, 103 (2d Cir. 1986). Accordingly, I deny Citron’s request that I bar plaintiff

from adding to its complaint new allegations and a new cause of action.

Plaintiff Was Entitled to Add Rising Pharma as a Defendant

Under this Circuit’s precedent, plaintiff similarly had a right to add Rising Pharma as a

party under Rule 15(a)(1). The case law in this circuit concerning whether a plaintiff may add new

parties as of right under Rule 15(a) is not entirely consistent. The Second Circuit held that

amendment as a matter of course includes the addition of parties in Washington v. N.Y.C. Board

of Estimate, 709 F.2d 792, 795 (2d Cir. 1983), but then suggested in an unpublished decision

several years later that the addition of new parties “lies in the discretion of the [district court]

judge” under Rule 21, Renard v. Dillman, 162 F.3d 1148 (table), 1998 WL 642474 at *2 (2d Cir.

1988). District courts have taken inconsistent approaches. Compare Singh v. Prudential Ins. Co.

of Am, Inc., 200 F. Supp. 2d 193, 196-97 & n.7 (E.D.N.Y. 2002) (concluding that Rule 15(a)

permits plaintiffs to add or drop parties as of right before the filing of a responsive pleading); Mori

v. Saito, No. 10-CV-6465, 2012 WL 13042573, at *6 (S.D.N.Y. Feb. 16, 2012); with Momentum

Luggage & Leisure Bags v. Jansport, Inc., No. 00-CV-7909, 2001 WL 58000, at *1-2 (S.D.N.Y.

Jan. 23, 2001) (“Rule 15(a) generally governs the amendment of complaints, but in the case of

proposed amendments where new defendants are to be added, Rule 21 governs.”). Ultimately, I

conclude I am bound by the Second Circuit’s published decision in Washington, under which

plaintiff was entitled to amend its complaint to add Rising Pharma as a defendant.

II. The Claims Against Rising Pharma Are Severed and Transferred to the District of

New Jersey

Rising Pharma argues that I should dismiss the claims against it or, in the alternative, sever

and stay the claims against it. As explained below, I conclude that the claims against Rising

Pharma should be severed and transferred to the District of New Jersey. I therefore do not reach

Rising Pharma’s dismissal arguments.

The Claims Against Rising Pharma Are Severed Under Rule 21

Federal Rule of Civil Procedure 21 states that a court may “sever any claim against a party.”

Courts have broad discretion when deciding whether severance is appropriate. See New York v.

Hendrickson Bros., 840 F.2d 1065, 1082 (2d Cir. 1988). While the Second Circuit has not set

forth specific criteria for severance, courts in this circuit generally consider whether (i) “the claims

arise out of the same transaction or occurrence”; (ii) the claims present common questions of law

or fact; (iii) judicial economy (including possible settlement) would be served by severance;

(iv) severance would avoid prejudice; and (v) different evidence is required for the separate claims.

Gym Door Repairs, Inc. v. Young Equip. Sales, Inc., 206 F. Supp. 3d 869, 918 (S.D.N.Y. 2016);

Erausquin v. Notz, Stucki Mgmt. (Bermuda) Ltd., 806 F. Supp. 2d 712, 720 (S.D.N.Y. 2011).

On balance, these factors favor severance.

First Factor. The first severance factor weighs lightly against severance. The claims

against Rising Pharma arise out of the same transaction or occurrence as the claims against Citron.

Plaintiff’s claims against Citron arise out of alleged breaches of the Term Sheet—a contract

between plaintiff and Citron. See FAC ¶¶ 33-39, 68-75. Plaintiff’s claims against Rising Pharma,

in turn, arise out of Rising Pharma’s alleged assumption of Citron’s liability through the

Bankruptcy APA. Id. ¶¶ 66-67, 76. Assuming plaintiff’s allegations are true, there is a logical

connection between the respective claims against Citron and Rising Pharma because Citron’s

alleged breach of the Term Sheet gives rise to both claims. See N. Jersey Media Grp. Inc. v. Fox

News Network, LLC, 312 F.R.D. 111, 115 (S.D.N.Y. 2015) (analyzing this factor by assessing

whether claims are logically related). But I conclude that this factor weighs only modestly against

severance because the claims against Rising Pharma also involve distinct issues concerning the

obligations that Rising Pharma assumed under the Bankruptcy APA.

Second Factor. The second factor, concerning whether the claims present common

questions of law or fact, also weighs against severance. Plaintiff’s claim against Rising Pharma

depends on Citron’s liability to plaintiff. Further, assuming Rising Pharma did assume Citron’s

liability, any finding against Citron would likely apply equally against Rising Pharma.

Third Factor. The judicial economy factor weighs heavily in favor of severance. The

purpose of severance here is to transfer the claims to the District of New Jersey with a

recommendation that they be referred to the Bankruptcy Court. The Bankruptcy Court retained

exclusive jurisdiction to interpret the terms of the Sale Order and Bankruptcy APA, see Sale Order

¶ 49, and these terms are the basis for plaintiff’s claims against Rising Pharma, see FAC ¶¶ 66-67.

In fact, plaintiff has already conceded in Bankruptcy Court that the Bankruptcy Court has exclusive

jurisdiction to interpret the terms of the Sale Order and Bankruptcy APA. See Rising Pharma’s

Sept. 14, 2020 Letter to J. Kovner, Ex. 1 at 68:6-9, 82:1-8 (Dkt. #227-1). Judicial economy

therefore is best served by respecting the jurisdiction of the Bankruptcy Court and its expertise in

interpreting its own orders.

In reaching this determination, I reject plaintiff’s two arguments for why severance for the

purposes of transferring this action would not facilitate judicial economy. First, plaintiff suggests

the Bankruptcy Court has invited me to interpret the Bankruptcy APA, pointing to a statement

from the Bankruptcy Judge that “the other court can read a contract just as well as I can,” see id.

at 81:22-25. Context makes clear, however, that the Bankruptcy Judge was not disputing that it

had retained exclusive jurisdiction over the contract at issue, and is prepared to interpret the

Bankruptcy APA if plaintiff properly raises a contractual interpretation issue. See, e.g., id. at 82:1-

15. Second, plaintiff argues severance and transfer would be inefficient because “[a]nother court

would have to become familiar with the same facts underlying Citron’s liability” to plaintiff and

“would also have to become familiar with the intricate history of Rising [Pharma]’s bankruptcy

and related [Bankruptcy] APA.” See Plaintiff’s Opposition 18. But the Bankruptcy Court is the

very court that approved the Bankruptcy APA (see Sale Order; Bankruptcy APA) and is currently

adjudicating plaintiff’s proofs of claim against the debtors (Baker Decl., Exs. D and E). The

Bankruptcy Court is therefore able to adjudicate plaintiff’s claims in an economical manner.

Fourth Factor. The fourth factor—whether severance would avoid prejudice—weighs in

favor of severance. Rising Pharma entered into the Bankruptcy APA based on the understanding

that all disputes concerning that order would be handled by the Bankruptcy Court—which has

expertise in bankruptcy sales generally as well as the Bankruptcy APA specifically. If I retain

plaintiff’s claims against Rising Pharma, I will be undermining this settled expectation.

By contrast, plaintiff would be minimally prejudiced by severance because it is already

adjudicating claims in the Bankruptcy Court.

Fifth Factor. The fifth factor, concerning overlapping evidence, weighs lightly against

severance. There is some potential overlap in evidence between plaintiff’s claims against Citron

and Rising Pharma. If the Bankruptcy Court determines that Rising Pharma assumed Citron’s

liabilities, it will then need to assess the merits of plaintiff’s claims against Citron. That said, the

significance of this factor is mitigated here because the Bankruptcy Court has the power to delay

the ultimate resolution of the Rising Pharma claims until this Court resolves the Citron claims.

That is, the Bankruptcy Court can choose to decide whether Rising Pharma assumed Citron’s

liabilities, but to delay any potential resolution of plaintiff’s claims against Citron until those

claims are resolved by this Court. In fact, the Bankruptcy Court has already exercised its power

to stay resolution of the Rising Pharma claims: in 2019, it stayed litigation over plaintiff’s

bankruptcy claims against Rising Pharma through March 31, 2021. See Baker Decl., Ex. F at ¶ 6.

* * *

The five factors, taken together, warrant severance. The interest of judicial economy

weighs particularly heavily here given the overlap between plaintiff’s claims against Rising

Pharma and the ongoing Bankruptcy Action. Moreover, plaintiff’s claims against Citron and

Rising Pharma are not so closely linked in fact, law, or evidence that severance would be

inappropriate. Accordingly, the claims against Rising Pharma are severed.

The Claims Against Rising Pharma Are Transferred to the District of New

Jersey

I transfer the claims against Rising Pharma to the District of New Jersey. Under 28 U.S.C.

§ 1404(a), courts may for “the convenience of parties and witnesses” and “in the interest of justice”

transfer “any civil action to any other district . . . where it might have been brought.” The “broad

language” of this section permits courts to transfer cases sua sponte. Lead Indus. Ass’n. Inc. v.

OSHA, 610 F.2d 70, 79 n.17 (2d Cir. 1979); see Ferrier v. Q. Link Wireless, 413 F. Supp. 3d 135

(E.D.N.Y. 2018) (citing Lead Indus. Ass’n. Inc., 610 F.2d at 79 n.17); Bank of Am., N.A. v.

Wilmington Trust FSB, 943 F. Supp. 2d 417, 426 (S.D.N.Y. 2013). District courts have broad

discretion in assessing convenience under Section 1404(a). D.H. Blair & Co. v. Gottdiener,

462 F.3d 95, 106 (2d Cir. 2006). In deciding whether to transfer a case, courts commonly consider

the plaintiff’s choice of forum; the convenience of witnesses; the location and access to relevant

documents and sources of proof; the convenience of parties; the locus of operative facts; the

procedural ability to compel the attendance of unwilling witnesses; and the relative means of the

parties. Id. at 106-07. Courts in the Second Circuit have also considered the forum state’s

familiarity with the governing law, trial efficiency, and the interests of justice broadly. See, e.g.,

Keitt v. New York City, 882 F. Supp. 2d 412, 459 (S.D.N.Y. 2011).

As an initial matter, plaintiff’s claims against Rising Pharma in the District of New Jersey

“might have been brought” in the District of New Jersey. 28 U.S.C. § 1404(a). In general, a

proceeding “related to” a case under Title 11 may be brought in the district court where the

bankruptcy case is pending. 28 U.S.C. § 1409(a). A proceeding is “related to” an underlying

bankruptcy when its outcome could have a “conceivable effect” on the bankrupt estate. In re

Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir. 1992); see In re Combustion Eng’g, Inc.,

391 F.3d 190, 225-26 (3d Cir. 2004), as amended (Feb. 23, 2005). Plaintiff’s claims against Rising

Pharma rest on the terms of the Bankruptcy APA, which was ordered by the U.S. Bankruptcy

Court for the District of New Jersey. See FAC ¶¶ 66-67. If Rising Pharma in fact assumed Citron’s

liabilities to plaintiff through the Bankruptcy APA—whether from Citron directly or from Aceto

or its subsidiaries—the obligations of the debtors, and therefore the bankrupt estate, would be

affected. The claims against Rising Pharma are therefore “related to” the Bankruptcy Action, and

plaintiff could have brought its claims in the “district court” in which the Bankruptcy Action was

pending. 28 U.S.C. § 1409(a).

The factors considered when deciding whether to transfer a case weigh heavily in favor of

transfer. Trial efficiency and the interests of justice are particularly significant here. The

Bankruptcy Court has retained exclusive jurisdiction to interpret its own Sale Order and the

Bankruptcy APA. See Sale Order ¶ 49. Cf. Bank of Am., N.A., 934 F. Supp. 2d at 427 (finding

Bankruptcy Court’s exclusive jurisdiction weighed heavily in favor of transfer); Lothian Cassidy

LLC v. Ransom, 428 B.R. 555, 562 (E.D.N.Y. 2010). This exclusive jurisdiction also comes with

intimate knowledge of those documents. Similarly, the locus of operative facts lies squarely in the

Bankruptcy Court itself given that plaintiff’s claims against Rising Pharma lie in the Bankruptcy

APA. See FAC ¶¶ 66-67; cf. AIG Fin. Prods. Corp. v. Pub. Util. Dist. No. 1 of Snohomish Cty.,

675 F. Supp. 2d 354, 370 (S.D.N.Y. 2009) (analyzing this factor based on where the claims arose).

The remaining factors do not outweigh judicial economy and the interests of justice. Most

are neutral. All parties before me are currently litigating both in New York (in this action) and in

New Jersey (in the Bankruptcy Action). Neither party has suggested that either venue is

burdensome. Nor does witness convenience appear to be an issue when the claim arises entirely

out of the Bankruptcy APA, a document approved by the Bankruptcy Court itself. While plaintiff’s

choice of forum is “presumptively entitled to substantial deference,” Gross v. BBC, 386 F.3d 224,

230 (2d Cir. 2004), that presumption has been overcome here through the Bankruptcy Court’s

exclusive jurisdiction and familiarity with the relevant facts. See Bank of Am., N.A., 943 F. Supp.

2d at 427. Therefore, I transfer the case to the District of New Jersey.

III. The Court Will Not Consider Factual Allegations Raised for the First Time in

Plaintiff’s Declaration and Plaintiff’s Opposition

Both defendants move to strike the Declaration and portions of Plaintiff’s Opposition

because they introduce new factual allegations that I am unable to consider on a motion to dismiss.

See Citron’s Motion to Strike 1-4 (Dkt. #219-1); Rising Pharma’s Motion to Strike 3-6 (Dkt. #221-

5). As an initial matter, I lack the power under the Federal Rules of Civil Procedure to strike a

declaration or a motion. Even so, I will disregard the new factual allegations in the Declaration

and Plaintiff’s Opposition as is appropriate when resolving a motion to dismiss.

Declarations and Memoranda Cannot be Struck Under Federal Rule of Civil

Procedure 12(f)

Defendants move to strike the Declaration and portions of Plaintiff’s Opposition without

identifying the procedural basis for their request. See generally Citron’s Motion to Strike

(Dkt. #219); Rising Pharma’s Motion to Strike (Dkt. #221). I construe their arguments as falling

under Rule 12(f), the procedural rule that relates to motions to strike. Rule 12(f) of the Federal

Rules of Civil Procedure allows a court to strike from a “pleading” any “redundant, immaterial,

impertinent, or scandalous matter.” But neither a declaration nor a memorandum appears to be a

“pleading” under the Federal Rules of Civil Procedure. Rule 7, which lists the types of pleadings

that are permissible in federal court, does not mention declarations or memoranda. See Fed. R.

Civ. P. 7(a). Numerous courts have held that they are not authorized by Rule 12(f) to strike matters

in documents other than pleadings. See, e.g., United States ex rel. Lee v. N. Adult Daily Health

Care Ctr., 174 F. Supp. 3d 696, 699-700 (E.D.N.Y. 2016) (motion for an alternate remedy);

Williams v. Rosenblatt Sec. Inc., 136 F. Supp. 3d 593, 615 (S.D.N.Y. 2015) (motion to dismiss),

opinion reinstated on reconsideration, No. 14-CV-4390, 2015 WL 6509112 (S.D.N.Y. Oct. 28,

2015); Granger v. Gill Abstract Corp., 566 F. Supp. 2d 323, 334-35 (S.D.N.Y. 2008) (motions,

affidavits, declarations); see also 5C Charles Alan Wright & Arthur R. Miller, Federal Practice

and Procedure § 1380 (3d ed. 2004) (“[M]otions, affidavits, briefs, and other documents outside

of the pleadings are not subject to Rule 12(f).”). By moving to strike the Declaration and portions

of Plaintiff’s Opposition, defendants seek a remedy that is not available under the Federal Rules

of Civil Procedure. I therefore deny their motions to strike.

The Court May Not Consider Matters Outside the Amended Complaint When

Deciding Defendants’ Motions to Dismiss

Nevertheless, I may not consider matters outside the pleadings when resolving a motion to

dismiss. Nakahata v. New York-Presbyterian Healthcare System, Inc., 723 F.3d 192, 203 (2d Cir.

2013); Newman & Schwartz v. Asplundh Tree Expert Co., 102 F.3d 660, 662 (2d Cir. 1996).

That includes new factual allegations in memoranda, affidavits, declarations, and sur-replies.

See, e.g., Chambers v. Time Warner, Inc., 282 F.3d 147, 154 (2d Cir. 2002) (allowing courts, when

deciding motions to dismiss, to disregard extra-pleading material filed by the parties); Gorfinkel

v. Ralf Vayntrub, Invar Consulting Ltd., No. 11-CV-5802, 2014 WL 4175914, at *4 (E.D.N.Y.

Aug. 20, 2014).

Plaintiffs point to no authority to the contrary. While plaintiffs emphasize that defendants

have not established that the Declaration should be stricken from the docket, see Plaintiff’s Memo

in Opp. to Defs.’ Mots. to Strike 3-8 (Dkt. #223), the question of whether it is appropriate to strike

the Declaration or portions of Plaintiff’s Opposition is distinct from the question of whether I may

consider the content of those materials in deciding a dismissal motion. The cases cited by plaintiffs

do not suggest that a court can rely on facts alleged for the first time in a supplemental declaration

or a memorandum when deciding a motion to dismiss. And while plaintiff explains that it alleged

new facts in the Declaration to correct inaccuracies in defendants’ filings, id. at 7-8, plaintiff cites

no law permitting me to consider new allegations under those circumstances.

That said, two exhibits attached to the Declaration are appropriately considered in

adjudicating the motion to dismiss because they were incorporated by reference into the Amended

Complaint. When deciding motions to dismiss, courts may consider written instruments attached

to a complaint as exhibits or incorporated into the complaint by reference. Chambers, 282 F.3d at

152-53. For documents to be incorporated by reference, “the complaint must make a clear, definite

and substantial reference to the documents.” DeLuca v. AccessIt Group, Inc., 695 F. Supp. 2d 54,

60 (S.D.N.Y. 2010) (internal quotations marks and citations omitted). Here, the Amended

Complaint incorporates by reference Declaration Exhibit 1, which contains emails related to the

Term Sheet and the Term Sheet itself, see FAC ¶¶ 17-18, and Declaration Exhibit 2, which is the

Citron PPA, see id. ¶¶ 17-18. By contrast, the Amended Complaint does not mention any of the

documents contained in Declaration Exhibits 3, 4, and 5. Accordingly, I will consider Declaration

Exhibits 1 and 2 but disregard the remaining Declaration exhibits.

IV. The Quantum Meruit and Unjust Enrichment Claims Are Dismissed

Legal Standard

To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough facts

to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,

570 (2007). A claim has “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.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is properly dismissed where, as a matter of

law, “the allegations in a complaint, however true, could not raise a claim of entitlement to relief.”

Twombly, 550 U.S. at 558.

When considering a motion to dismiss, a district court must “accept[] all factual claims in

the complaint as true, and draw[] all reasonable inferences in the plaintiff’s favor.” Lotes Co., Ltd.

v. Hon Hai Precision Indus. Co., 753 F.3d 395, 403 (2d Cir. 2014) (quotations omitted). However,

“the tenet that a court must accept as true all of the allegations contained in a complaint is

inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. “Threadbare recitals of the elements

of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Rather, the

complaint’s factual allegations “must be enough to raise a right to relief above the speculative

level, i.e., enough to make the claim plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120

(2d Cir. 2010) (citations and internal quotation marks omitted). While the plausibility standard “is

not akin to a probability requirement,” it requires “more than a sheer possibility that a defendant

has acted unlawfully.” Iqbal, 556 U.S. at 678 (internal quotation marks and citation omitted).

At the motion to dismiss stage, a court may consider only the complaint itself, documents

either attached to the complaint or incorporated in it by reference, documents the plaintiff relied

on and knew of when bringing suit, and matters in the public record that are subject to judicial

notice. See, e.g., ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); Sira

v. Morton, 380 F.3d 57, 67 (2d Cir. 2004); Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44

(2d Cir. 1991).

Application

Citron moves to dismiss plaintiffs’ quantum meruit and unjust enrichment claims because

plaintiffs are simultaneously alleging a breach of contract claim under the Term Sheet. Citron’s

Dismissal Memo 20. Although pleadings may generally include quantum meruit and unjust

enrichment claims along with breach of contract claims, the Amended Complaint fails to state a

claim for either unjust enrichment or quantum meruit. Those claims are therefore dismissed under

Rule 12(b)(6).

If a plaintiff seeks to recover on a breach of contract claim, it may not also recover on

unjust enrichment or quantum meruit claims. Because quantum meruit and unjust enrichment are

both implied contracts, New York law does not permit recovery in quantum meruit “if the parties

have a valid, enforceable contract that governs the same subject matter as the quantum meruit

claim.” Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 175

(2d Cir. 2005) (collecting cases). Unjust enrichment claims are likewise barred by the existence

of a valid and enforceable written contract. Superintendent of Ins. v. Ochs, 377 F.3d 209, 213

(2d Cir. 2004) (citing Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388 (1987)).

At the pleading stage, however, a “party may state as many separate claims . . . as it has,

regardless of consistency.” Fed. R. Civ. P. 8(d)(3). “Federal courts have construed this language

[in Federal Rule of Civil Procedure 8(d)(3)] to permit plaintiffs to sue on a contract and at the same

time alternatively repudiate the agreement and seek recovery on a quantum meruit claim.”

Knudsen v. Quebecor Printing (U.S.A.) Inc., 792 F. Supp. 234, 237 (S.D.N.Y. 1992) (internal

citations and quotation marks omitted); see Paper Corp. of the U.S. v. Schoeller Tech. Papers,

Inc., 742 F. Supp. 808 (S.D.N.Y. 1990) (citing Shapiro v. Dictaphone Corp., 411 N.Y.S.2d 669

(App. Div. 1978)) (allowing plaintiff to plead quantum meruit in the alternative because the

existence of the contract was “in dispute”); see also Altaire Pharm., Inc. v. Rose Stone Enters.,

No. 13-CV-4373, 2013 WL 6235862, at *7 (E.D.N.Y. 2013) (collecting cases). Nevertheless, to

do so, a party must, at minimum, allege in the alternative that the parties’ contract was void or

otherwise unenforceable. See Air Atlanta Aero Eng’g Ltd. v. SP Aircraft Owner I, LLC, 637 F.

Supp. 2d 185, 195-96 (S.D.N.Y. 2009) (explaining that a plaintiff may plead breach of contract

and quantum meruit in the alternative “when there is a dispute as to the agreement’s validity or

enforceability”); Perfect Dental, PLLC v. Allstate Ins. Co., Nos. 04-CV-586, 04-CV-588, 2006

WL 2552171, at *1 (E.D.N.Y. Aug. 31, 2006) (plaintiffs may plead unjust enrichment and breach

of contract in the alternative “where there is a bona fide dispute regarding the existence of a

contract”).

The Amended Complaint fails to meet the requirements for simultaneously pleading breach

of contract and, in the alternative, quantum meruit and unjust enrichment. Plaintiff alleges the

existence of a contractual Term Sheet concerning the sale of Doxy that governs the issues in this

case. FAC ¶¶ 12-32. Plaintiff does not allege, in the alternative, that the Term Sheet is not valid

or enforceable. On the contrary, plaintiff’s explanations of its quantum meruit and unjust

enrichment claims incorporates its allegations regarding the Term Sheet. Id. ¶¶ 88, 96 (“Chartwell

incorporates by reference all previous allegations as if fully set forth herein.”). Because plaintiff

nowhere alleges, in the alternative, that the parties’ contract was void or otherwise unenforceable,

plaintiff’s quasi-contractual claims are deficient. See Air Atlanta Aero Eng’g Ltd., 637 F. Supp.

2d at 196 (“[Plaintiff’s] failure to allege that the contracts at issue are invalid or unenforceable

precludes it . . . from seeking quasi-contractual recovery.”); Gianascio v. Giordano, No. 99-CV-

1796, 2003 WL 22999454 (S.D.N.Y. Dec. 19, 2003) (dismissing a claim of unjust enrichment

because “plaintiff is alleging the existence of an enforceable contract in his claim for unjust

enrichment”). Plaintiffs’ quantum merit and unjust enrichment claims are therefore dismissed

under Rule 12(b)(6).

CONCLUSION

Citron’s motion to strike or dismiss the Amended Complaint is GRANTED IN PART and

DENIED IN PART. The claims against Rising Pharma are SEVERED and TRANSFERRED to

the United States District Court for the District of New Jersey with a recommendation that the case

be referred to Judge Vincent F. Papalia of the United States Bankruptcy Court of New Jersey.

And defendants’ motions to strike or disregard plaintiff’s declaration are GRANTED IN PART

and DENIED IN PART.

SO ORDERED.

/s/ Rachel Kovner

Rachel P. Kovner

United States District Judge

Dated: Brooklyn, New York

November 30, 2020