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Zirvi v. Flatley

United States District Court, S.D. New York

January 14, 2020

MONIB ZIRVI et al., Plaintiffs,
v.
JAY T. FLATLEY et al., Defendants.

          OPINION AND ORDER

          JOHN G. KOELTL, UNITED STATES DISTRICT JUDGE

         In the Second Amended Complaint (the “Complaint” or “SAC”), the plaintiffs allege that the defendants have orchestrated a wide-ranging conspiracy over the past twenty-five years to steal the plaintiffs' trade secrets consisting of proprietary discoveries related to the encoding and decoding of DNA. The plaintiffs are scientists Monib Zirvi, Matthew Lubin, Maria Kempe, and Norman Gerry. The defendants are scientists and businesspeople Jay Flatley, David Walt, Stephen Fodor, Kevin Gunderson, Jian-Bing Fan, Mark Chee, and John Stueplnagel, a patent lawyer Robin Silva, and biotechnology companies Affymetrix, P.E. Applied Biosystems, and Illumina, Inc. The plaintiffs allege claims under the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, et seq.; the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq.; the New York common law of trade secrets protections; and claims for other common law torts of fraud, conversion, tortious interference with prospective business advantage, inequitable conduct, civil conspiracy, and breach of confidence. The defendants collectively move to dismiss the Complaint under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that the plaintiffs lack standing, that the plaintiffs' claims are barred by various statutes of limitations, and that in any event the facts alleged do not amount to violations of federal or state law. In addition to joining the defendants' motion, Stephen Fodor also moves individually to dismiss the claims against him.

         For the reasons set out below, the motions to dismiss the Complaint are granted and the Complaint is dismissed with prejudice.

         I.

         The defendants move to dismiss the Complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction because the plaintiffs allegedly lack standing to pursue their claims. “Dismissal of a case for lack of subject matter jurisdiction under Rule 12(b)(1) is proper ‘when the district court lacks the statutory or constitutional power to adjudicate it.'” Ford v. D.C. 37 Union Local 1549, 579 F.3d 187, 188 (2d Cir. 2009) (quoting Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)). In considering a Rule 12(b)(1) motion, courts must construe all ambiguities and inferences in a plaintiff's favor. However, a court may refer to evidence outside of the pleadings, and the burden is on the plaintiff to prove by a preponderance of the evidence that jurisdiction exists. See Makarova, 201 F.3d at 113. “To survive the motion to dismiss, the pleadings must only allege facts that affirmatively and plausibly suggest that Plaintiffs have standing to sue.” Lowell v. Lyft, Inc., 352 F.Supp.3d 248, 255 (S.D.N.Y. 2018) (quotations and alterations omitted). “[A]t the pleading stage, standing allegations need not be crafted with precise detail, nor must the plaintiff prove his allegations of injury.” Baur v. Veneman, 352 F.3d 625, 631 (2d Cir. 2003).

         The defendants also move to dismiss the Complaint pursuant to Rule 12(b)(6). In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated “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).

         Although the Court should construe the factual allegations in the light most favorable to the plaintiff, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.” Id. at 678. When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

         II.

         The following facts alleged in the Complaint are accepted as true for the purposes of ruling on the motions to dismiss.

         The plaintiffs' claims, under both federal and New York State law, arise out of two alleged instances of misappropriation of trade secrets, one occurring in 1994 when certain trade secrets were allegedly stolen from a confidential grant proposal, and one occurring in 1999 when alleged trade secrets were allegedly misappropriated during confidential communications. The plaintiffs allege that these two acts of misappropriation resulted in the theft of both positive and negative trade secrets.[1] In order to overcome the various statutes of limitations, the plaintiffs also allege the existence of an overarching, twenty-five-year conspiracy of fraudulent concealment engineered by the defendants that allegedly prevented the plaintiffs from learning the full extent of the defendants' misconduct until 2015. Because they allegedly only discovered the conspiracy in 2015, the plaintiffs allege that this action, which the plaintiffs filed on August 3, 2018, is timely because the statutes of limitations should be equitably tolled until the discovery of the alleged conspiracy. SAC ¶¶ 5-6, 9-13, 26-31.

         Throughout the early 1990s, the plaintiffs began collaborating in various capacities with Dr. Francis Barany of Cornell University Medical College (now Weill Cornell Medical College) to “creat[e] an entirely novel method for diagnosing human genetic defects.” SAC ¶¶ 2, 16, 20 (Lubin), 34 (Zirvi), 37 (Gerry), 102 (Lubin and Gerry), 196 (Kempe).[2] In February 1994, Barany's team, which included Lubin, submitted a grant proposal to the National Cancer Institute containing alleged trade secrets. Id. at ¶¶ 102-03. The achievement of the Barany proposal, allegedly, was “a radical new idea of ‘Universal Addressable Arrays.'” Id. at ¶ 104. The array was a grid structure made up of numerous squares in which each square contained a “man-made designed DNA sequence[]” that the Barany team referred to as a “zip code” and each square was referred to as an “address[].” Id. at ¶ 109(I). The arrays worked together with a ligase detection reaction (“LDR”) in which DNA would be extracted from a biological sample and matched up to the array to reveal genetic mutations through a process known as polymerase chain reaction (“PCR”). Id. at ¶¶ 72, 104, 107(3), 109(I), 109(III). The technologies developed by the plaintiffs throughout the 1990s and early 2000s, and which formed the basis for numerous patent applications, were all broadly related to LDR, PCR, zip code array, and DNA sequencing. Id. at ¶¶ 135 (‘917 and ‘470 patent series), 162 (‘594 patent series), 208 (‘917, 470, and ‘594 patent series), 259 (‘293, ‘470, and ‘917 patent series), 310 (‘470 and ‘293 patent series).[3]

         The first alleged instance of misappropriation occurred on or around June 1, 1994 when Stephen Fodor, the Chief Technology Officer of the biotechnology company Affymetrix, in his capacity as a peer reviewer for the National Institute of Health (“NIH”), reviewed the Barany proposal. Id. at ¶ 16. According to the plaintiffs, upon reviewing the grant proposal, Fodor “immediately resolved to steal those ideas” contained in the grant proposal in violation of confidentiality agreements that he was bound to obey in his capacity as an NIH reviewer. Id. at ¶¶ 20, 114-17. Fodor then allegedly enlisted Affymetrix employees, the defendants Mark Chee, Jian-Bing Fan, and Kevin Gunderson, to begin filing patent applications based on the technologies and ideas described in the grant proposal. Id. at ¶ 123.

         According to the plaintiffs, Fodor “deliberately removed himself as a co-inventor of the October 26th, 1994 patent application” and instructed Chee, Fan, and Gunderson to file the patent applications in order to cover his tracks. Id. at ¶ 125. The October 26, 1994 patent application was one in a series of related patent applications that eventually resulted in the final application filed on April 3, 1996 and published as United States Patent No. 6, 156, 501 on December 5, 2000. Prakash Decl., Ex. 23, at 1:[63]; SAC ¶ 124. Notwithstanding the allegations in the Complaint that Fodor deliberately removed himself from these patent applications, his name appeared on an International Patent Application that was published to the world on May 4, 1995 under International Publication Number WO 95/11995. Gorman Decl., Ex. 3. The International Patent, which listed Fodor as an inventor, had an international application number of PCT/US94/12305, a number that corresponded to the October 26, 1994 application that was in the chain of applications that eventually culminated in the ‘501 patent series. Gorman Decl., Ex. 3, at 1:(21); Prakash Decl., Ex. 23, at 1:[63]. The International Patent was also related by continuation to a United States patent application numbered 08/284, 064 that corresponded to an application in the chain of applications culminating in the ‘501 patent series. Gorman Decl., Ex. 3, at 1:(60); Prakash Decl., Ex. 23, at 1:[63].

         On May 1, 1995, Barany allegedly explained “on a strictly confidential basis” to the defendant, Dr. David R. Walt of Tufts University, Barany's proprietary discoveries of “Zip Code chemistry, ” primers, and probes that could be used to encode and decode DNA. SAC ¶¶ 132-33. Walt formed the defendant company Illumina Inc. in 1998, with defendants Chee, Fan, Gunderson, and John Stueplnagel as founding employees, and Jay Flatley as the first CEO. Id. at ¶¶ 140-42. Beginning in June 1998, Stueplnagel, Chee, and Gunderson filed several patent applications that were allegedly derived from the Barany grant proposal. Id. at ¶¶ 143-45, 149. More generally, the plaintiffs allege that the defendants filed patent applications that were designed to conceal the alleged source of the work by omitting certain information from the patent applications that could lead back to Barany and his team. Id. at ¶¶ 143-44, 149-50, 153.

         Around this time, the plaintiffs Lubin, Zirvi, Kempe, and Gerry began to assign their rights in the ‘470, ‘917, ‘293, and ‘594 patent series to Cornell and the University of Minnesota, which later assigned its interests to Cornell. Id. at ¶¶ 3, 135, 168, 273, 321; Prakash Decl., Exs. 4, 7, 8, 9, 13, 22.

         The second alleged instance of misappropriation occurred in 1999 after Zirvi, then a medical student at Cornell working with Barany, developed 187 files of Microsoft Excel and Word documents containing, among other things, the design of 4, 633 zip codes including an alleged proprietary set of 465 zip codes. SAC ¶ 155. On August 8, 1999, Barany allegedly provided the 187 files to Bill Efcavitch of P.E. Biosystems.[4] Barany allegedly instructed Efcavitch to keep the files secret pursuant to a confidentiality agreement between Cornell and P.E. Biosystems. Id. at ¶¶ 181-83. According to the plaintiffs, P.E. Biosystems and Illumina were, unbeknownst to the plaintiffs, working together at the time. Id. at ¶ 188.

         On April 14, 2000, Barany, Zirvi, and Gerry, among others, filed a provisional patent application, a “Method of Designing Addressable Array for Detection of Nucleic Acid Sequence Differences Using Ligase Detection Reaction, ” which would eventually be published as United States Patent Number 7, 455, 965 (“'965 patent”) on November 25, 2008. Prakash Decl., Ex. 21; SAC ¶ 284. The ‘965 patent application was published to the world on October 25, 2001. Prakash Decl., Ex. 19-1. According to the Complaint, the ‘965 patent application “described PCR-LDR, 4, 633 zip codes, Universal Arrays, detection of low abundance K-ras mutations and included substantial data.” SAC ¶ 284.

         According to the plaintiffs, the data contained in the 187 files, and particularly in the 465-zip code set, were never published and were not reproduced by the plaintiffs in the ‘965 patent filings even though those filings contained zip code sets. Id. at ¶¶ 155-56. The plaintiffs allege that the precise order of the 465-zip code set was integral to its value and that the set, when misappropriated and used by the Illumina defendants, “became a clear and unmistakable marker for the theft of Dr. Zirvi's trade secret, much like a finger print or red ink exploding in a stack of bills stolen during a bank robbery.” Id. at ¶ 156. Allegedly, the Illumina defendants Chee and Gunderson used the propriety zip code set in a patent application on August 25, 2000, entitled “Probes and Decoder Oligonucleotides.” Id. at ¶ 320. The plaintiffs allege that Chee and Gunderson “blatantly copied the Barany team Zip Code IP” but renamed them “Illumacdoes.” Id. at ¶¶ 320-21.

         Then, in 2006, junior parties Barany, Kempe and Zirvi, among others, brought a patent interference claim before the United States Patent and Trademark Office alleging that Fodor and his Affymetrix colleagues had unlawfully derived the October 26, 1994 patent application and a related family of patents from the Barany grant proposal. Id. at ¶¶ 127, 180; Prakash Decl., Ex. 25. The Board of Patent Appeals ultimately concluded that “Barany's motion fails to establish, prima facie, that the [Affymetrix inventors] derived the subject matter of the count from Barany.” Gorman Decl., Ex. 10, at 9.

         On May 24, 2010, Cornell initiated a patent infringement case against Illumina in the United States District Court for the District of Delaware. Cornell Univ. v. Illumina, Inc., No. 10-cv-433, 2017 WL 89165, at *1 (D. Del. Jan. 10, 2017); see SAC ¶ 1. In that case, Cornell alleged that Illumina infringed a number of patents falling into two categories: (1) array patents that related to tools that utilize oligonucleotides with particular sequence properties to detect target molecules, and (2) LDR-PCR patents that describe the combination of a ligase detection reaction with polymerase chain reaction to test for genetic changes. See Cornell, 2017 WL 89165, at *1. That litigation ended on April 18, 2017 after the parties entered into a joint stipulation to dismiss the case. Cornell Univ. v. Illumina, Inc., No. 10-cv-433, Dkt. No. 598 (D. Del. Apr. 24, 2017).

         The plaintiffs allege that they learned about the conduct underlying the Complaint in this case for the first time during the Cornell v. Illumina, Inc. litigation in 2015, only after Zirvi was deposed by Illumina lawyers. SAC ¶¶ 502-04. According to the plaintiffs, the deposition of Zirvi was the initial thread that, once pulled, revealed a complex, multi-decade concerted effort to conceal the defendants' theft, as manifested in the years of patent filings containing alleged purloined trade secrets. Id. at ¶¶ 515-35. The plaintiffs allege that they could not have discovered the defendants' actions sooner because the defendants had taken great pains to cover their tracks by filing patents under various names and using different variations and combinations of technical terms in order to disguise the scheme of theft and fraud. Id. at ¶¶ 339, 344, 347, 353, 363, 366, 371-483.

         On August 8, 2018, the plaintiffs initiated this action, alleging violations by all or some of the defendants of the DTSA, civil RICO, New York common law trade secrets protections and other common law torts. Dkt. No. 13. On December 6, 2018, the plaintiffs filed an amended complaint, which amplified the claims in the original complaint by adding more facts, and which also added a claim for inequitable conduct against Robin Silva, a lawyer for Illumina. Dkt. No. 102. On February 8, 2019, the plaintiffs filed a second amended complaint, which contained the same claims and basic set of facts as the first amended complaint. Dkt. No. 127. The defendants now move to dismiss the Complaint.

         III.

         The gravamen of the Complaint is that the defendants misappropriated the plaintiffs' trade secrets in violation of both federal and New York state law in 1994 and 1999. The plaintiffs argue that two separate acts of alleged misappropriation - (1) Fodor's misappropriation of the Barany proposal in 1994, and (2) the Illumina defendants' misappropriation of Barany's and Zirvi's proprietary 465 zip codes in 1999 - resulted in the defendants' wrongful ownership of trade secrets that broadly fall into three categories - (1) positive trade secrets contained in the 1994 Barany proposal, (2) positive trade secrets contained in the 1999 proprietary zip codes, and (3) negative trade secrets derived from both acts ...


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