Novartis Seeds, Inc. v. Monsanto Company ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_____________
No. 99-1153MN
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Novartis Seeds, Inc. *
*
Appellant, *
* On Appeal from the United
v. * States District Court
* for the District of
* Minnesota.
Monsanto Company, *
*
Appellee. *
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Submitted: May 14, 1999
Filed: September 7, 1999
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Before RICHARD S. ARNOLD, JOHN R. GIBSON, and BOWMAN, Circuit Judges.
___________
RICHARD S. ARNOLD, Circuit Judge.
This lawsuit began in 1997 when Novartis Seeds, Inc., sued Monsanto Company
in a Minnesota state court. The plaintiff alleged that Monsanto broke development and
license agreements involving genetically engineered, insect-resistant seed corn. After
removing the case to the District Court, Monsanto filed a motion to dismiss for want
of jurisdiction over the subject matter (a Rule 12(b)(1) motion), claiming that Novartis
Seeds lacked "standing" because assignment and transfer restrictions in the 1995
License Agreement were violated when the plaintiff's parent company merged with
another corporation. This breach, Monsanto argued, terminated the contract, and
deprived Novartis of its standing to sue. The District Court agreed, holding that it did
not have subject-matter jurisdiction. We reverse. In our view, whether an assignment
or transfer in violation of the License Agreement took place has nothing to do with
subject-matter jurisdiction, but rather with an arguable defense on the merits. We
remand for further proceedings.
I.
The transactions at the center of this dispute are complex, and we will attempt
to explain them simply. The plaintiff, Novartis Seeds, a company in the business of
developing and selling seeds to farmers, was formerly known (before a name change)
as Northrup King Company. Northrup King was a wholly owned subsidiary of the
Sandoz Corporation, which, along with Sandoz Seeds Ltd., was a wholly owned
subsidiary of Sandoz AG, a Swiss corporation.
Monsanto and Sandoz Crop Protection Corporation, another Sandoz company,
signed an agreement in 1988 that allowed Sandoz Crop and its affiliates, of which
Northrup King was one, to use a certain kind of gene that had been developed by
Monsanto. Use of this gene allowed Northrup King to develop commercially viable
corn that is resistant to the European corn borer, a pest that causes millions of dollars
in damage each year in the United States. The Development Agreement was extended
several times, and, in 1995, was replaced by a License Agreement. The named parties
to the License Agreement were Monsanto and Sandoz Seeds Ltd. Also parties to the
Agreement were Sandoz Seeds' "affiliates," a group that included Northrup King.
In late 1996, Sandoz AG merged with another Swiss corporation, Ciba-Geigy
AG. Under Swiss law, a merger results in a new entity, and it was named Novartis
AG. Following the merger, Sandoz Seeds Ltd. was renamed Novartis Seeds AG. In
addition, Sandoz Corporation, which owned all of Northrup King's stock, was merged
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into Ciba-Geigy Corporation under New York law, and Ciba-Geigy Corporation
changed its name to Novartis Corporation. Novartis Corporation, the newly named
parent of Northrup King, later transferred its shares in Northrup King to Novartis
Finance Corporation, a wholly owned subsidiary of Novartis Corporation. Shortly
thereafter, Northrup King was renamed Novartis Seeds, Inc.
The 1995 License Agreement between Monsanto and Sandoz Seeds Ltd.
restricted the ability of Sandoz Seeds Ltd. to transfer or assign license rights to
Monsanto's technology. Section 10.06(a) provided that "the rights acquired
herein . . . are not assignable or transferable in whole or in part (by operation of law or
otherwise) to any third party without the prior written consent of Monsanto; provided,
however, that Sandoz may assign or transfer this Agreement in whole or part as part
of the sale or transfer of substantially all of a business to which this Agreement pertains
to a successor or assign; provided that, advance notice is given to Monsanto and the
successor/assignee shall enter into a written agreement with Monsanto to be bound by
the terms, conditions and obligations of this Agreement."
Section 10.06(a), however, was made subject to Section 10.06(b), which
provided that "[a]ssignment or transfer under Subsection 10.06(a) to a third party
owner or licensee of any issued or pending . . . patent right . . . which patent right
relates to modification of insect control protein(s) from Bacillus thuringiensis (B.t.) or
generally to the expression of one or more insect control proteins of B.t. in plants,
including but not limited to corn, which patent right may dominate the production, use
or sale of Licensed Corn Products by Monsanto . . . shall be void and of no effect . . .."
Section 10.06(d) further provided that "[a]ny transfer, assignment or delegation made
or attempted in violation of this Section 10.06 shall be void and of no effect."1
1
We are not sure we understand what is meant by saying, as Section 10.06(b)
does, that one patent right "may dominate" the production, use, or sale of certain
products. The parties have not explained this term to us. But the point is not important
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II.
As we have said, Novartis Seeds filed its lawsuit against Monsanto in a
Minnesota state court, alleging (among other things) that Monsanto broke the License
Agreement. Monsanto removed the case to the District Court and filed an answer and
counterclaim, alleging that Novartis Seeds had itself broken the License Agreement.
Monsanto then moved to dismiss the complaint, pursuant to Fed. R. Civ. P. 12(b)(1),
on the grounds that Novartis Seeds lacked standing to prosecute its claims. Monsanto's
theory, as we have described above, was that the merger between Sandoz and Ciba-
Geigy terminated Novartis Seeds' rights under the License Agreement. Monsanto
argued that Novartis Seeds was a third party to the Agreement and possessed no rights
itself under the Agreement, either as a party or as a third-party beneficiary. Therefore,
Monsanto asserted, the District Court did not have subject-matter jurisdiction to decide
the claims. Following some discovery and a hearing, the District Court granted
Monsanto's motion to dismiss.
The District Court began by analyzing the corporate reorganization which had
taken place. In the Court's view, as a result of the merger of Sandoz AG and Ciba-
Geigy AG, "the assets and liabilities of Northrup King, a former wholly-owned
subsidiary of Sandoz Corporation, became the assets and liabilities of Ciba-Geigy.
Ciba-Geigy then created Novartis Seeds, Inc. . . .." Novartis Seeds, Inc. v. Monsanto
Co., Civil No. 97-2925 (D. Minn. Dec. 4, 1998), slip op. 2. "Accordingly, all assets
owned or held by Sandoz Seeds, Sandoz Corporation, and Northrup King became a
part of Ciba-Geigy, the surviving company." Id. at 6. "Because of the merger, Sandoz
Seeds and Northrup King no longer exist. . . . The [License] Agreement and all other
assets of Sandoz Corporation and Northrup King became Ciba-Geigy's. Ciba-Geigy
for present purposes. Whatever "may dominate" means, whether an assignment or
transfer in violation of the License Agreement occurred relates to a defense on the
merits, not the existence vel non of subject-matter jurisdiction.
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then changed its name to Novartis Corporation and branched into additional corporate
identities such as Novartis Seeds, Inc., and Novartis Financial. The assets from Ciba-
Geigy flowed from it to these new subsidiaries. Therefore, at the time of the merger,
Novartis [Seeds, the plaintiff] did not even exist." Id. at 7.
In these circumstances, the Court thought, a violation of Section 10.06 had
occurred. Whatever rights Northrup King had had under the License Agreement had
been transferred to a new entity, which new entity, Ciba-Geigy, "was the owner of a
pending U.S. patent right which patent right related to the expression of one or more
insect control proteins of B.t. in plants." Id. at 9. "[T]he transfer of assets from Sandoz
to Ciba-Geigy violated the anti-transfer provision of the 1995 agreement. Therefore,
Novartis Seeds, Inc. has no standing to litigate this suit against Monsanto. Thus, this
Court lacks subject-matter jurisdiction." Id. at 10.
III.
Under Article III, section 2 of the Constitution, our courts are limited to deciding
actual "cases" or "controversies." That a plaintiff must have standing in order to pursue
a lawsuit is firmly rooted in our constitutional history, and requires that a plaintiff allege
a judicially cognizable and redressable injury. As the Supreme Court has said, "In
essence the question of standing is whether the litigant is entitled to have the court
decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490,
498 (1975). To have standing, a plaintiff must allege an injury that is fairly traceable
to the defendant's conduct, and the requested relief must be likely to redress the alleged
injury.
We have no doubt that the plaintiff here has "standing" in the constitutional,
Article III sense. Novartis Seeds alleges that Monsanto's conduct has violated the
License Agreement (as well as transgressed against plaintiff's legal rights in other
respects). The requested relief would redress this alleged injury. Monsanto's answer,
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by way of defense, is that the other side has violated the agreement in an important
respect, by making a transfer or assignment, or an attempted transfer or assignment,
that violates Article 10.06. Because of this breach, Monsanto argues, the plaintiff has
no legal right to complain of any alleged breach on the part of Monsanto. As a matter
of the English language, the word "standing" can be used to describe this sort of
contention, but "standing" in this context is entirely distinct from "standing" for
purposes of Article III.
Monsanto's contention, if upheld, establishes no more than a defense on the
merits, and the distinction between such a defense and subject-matter jurisdiction is a
vital one. See, e.g., Bell v. Hood, 327 U.S. 678, 682 (1946), where the Supreme Court
said:
Jurisdiction, therefore, is not defeated as respondents
seem to contend, by the possibility that the averments might
fail to state a cause of action on which petitioners could
actually recover. For it is well settled that the failure to state
a proper cause of action calls for a judgment on the merits
and not for a dismissal for want of jurisdiction. Whether the
complaint states a cause of action on which relief could be
granted is a question of law and just as issues of fact it must
be decided after and not before the court has assumed
jurisdiction over the controversy. If the court does later
exercise its jurisdiction to determine that the allegations in
the complaint do not state a ground for relief, then dismissal
of the case would be on the merits, not for want of
jurisdiction.
To the same effect are Steel Co. v. Citizens for a Better Environment, 118 S. Ct. 1003,
1010 (1998); Campbell v. Minneapolis Public Housing Authority, 168 F.3d 1069, 1074
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(8th Cir. 1999) ("We repeat the fundamental principle that the ultimate merits of the
case have no bearing on the threshold question of standing.").
If plaintiff's allegations of misconduct on the part of Monsanto have merit, and
that is the hypothesis upon which we must proceed at this stage of the case, plaintiff
clearly has standing in the constitutional sense. So we cannot agree with Monsanto on
this point. Monsanto urges us, nevertheless, to affirm the judgment on the ground that
the facts in the case are undisputed, an assignment in violation of the contract did take
place, and that, therefore, whether the question is properly labeled as one of "standing"
or not, judgment is appropriate in Monsanto's favor as a matter of law. We decline to
go that far at the appellate level for a number of reasons. The matter was presented to
the District Court as a question of subject-matter jurisdiction under Rule 12(b)(1). No
motion to dismiss under Rule 12(b)(6) for failure to state a cause of action was ever
ruled on, and no motion for summary judgment under Fed. R. Civ. P. 56 was ever filed.
At the time of the District Court's ruling on the 12(b)(1) motion, discovery on the merits
had apparently been stayed, at the request of Monsanto, for just over seven months.
Accordingly, we are not confident that the District Court had before it, or that we have
before us, all of the evidence that either side would consider relevant if the issue of the
lawfulness of the assignment or transfer were presented in its proper context, that is,
as a defense on the merits on which Monsanto, or perhaps both sides, would claim
entitlement to judgment as a matter of law.
In addition, although Monsanto asserts that all of the relevant facts are
undisputed, we are not sure that this is so. Monsanto's defense goes beyond the
assertion that the corporate reorganization resulted in an assignment or transfer contrary
to the express words of Section 10.06. Monsanto also claims that, even if the express
words of the contract were not violated, the corporate reorganization undertaken by the
Sandoz companies was a violation of the covenant of good faith and fair dealing that,
it is said, inheres in every contract. Such a contention, we think, may go beyond the
bare historical facts, and may require inferences from those facts. We are not prepared
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to say, on the basis of the present record, that all of those inferences would necessarily
go one way. We are not holding that Monsanto is not entitled to judgment as a matter
of law on such a theory. We are holding only that this question should be explored by
the District Court on remand. We do not feel sufficiently confident to address it
ourselves.
So the case must go back for further proceedings on the merits. We add the
following additional comments that may be helpful to the parties and the District Court.
1. The assets and liabilities of Northrup King did not, as a result of the
corporate reorganization or otherwise, become the assets of Ciba-Geigy or of Novartis
AG. The corporate existence of Northrup King was not affected. It continued to exist,
and it retains title to its own assets and liabilities.
2. Novartis Seeds, Inc., is not a newly created corporation. It is the same
corporation as Northrup King. What occurred was simply a name change. Novartis
Seeds, Inc., like Northrup King, retains its separate corporate existence. It is not
correct to say that at the time of the merger Novartis Seeds did not exist. It did exist,
though under its former name, Northrup King.
3. The complaint alleges claims under the License Agreement, but it also
alleges a number of other claims, including claims for breach of the 1988 Development
Agreement and claims for breach of fiduciary duty. Even if a transfer occurred that
violated the License Agreement, and even if, as a consequence, plaintiff is not entitled
to recover for any breach of that agreement, the other claims alleged by plaintiff may
survive. They should be separately analyzed. If, for example, some of these other
claims accrued before the allegedly unlawful transfer, we do not see how this transfer,
even if violative of the License Agreement, could bar them.
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4. Finally, about two and one-half months after plaintiff filed this action,
Monsanto filed suit in the United States District Court for the Eastern District of
Missouri against Novartis Seeds AG. Plaintiff claims that the allegations in this suit are
identical to those in Monsanto's counterclaim in the present case. Plaintiff made a
motion to enjoin Monsanto from prosecuting the Missouri lawsuit. After informal
consultation with the judge to whom the Missouri lawsuit was assigned, the District
Court concluded that no action on this motion was required, because the Missouri court
had decided to stay the action before it. Then, when the District Court dismissed this
case for lack of subject-matter jurisdiction, it denied the motion to enjoin the Missouri
suit as moot. Plaintiff asks us to instruct the District Court to hear and decide its
motion to enjoin.
Plaintiff should address this request to the District Court on remand. The same
practical reasons that led the Court not to issue an injunction, at least de facto, may still
exist. We have no way of knowing. This is a discretionary matter best addressed by
the District Court on remand after informing itself as to all of the relevant
circumstances concerning the present status of both cases.
IV.
For the reasons given, we reverse the judgment of the District Court, which
dismissed this case for lack of subject-matter jurisdiction. We hold that the District
Court does have subject-matter jurisdiction. The case is remanded to that Court for
further proceedings on the merits consistent with this opinion.
It is so ordered.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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