Guidance Endodontics Llc v. Dentsply Int'l Inc.

• Decision Date: 09 May 2011
• Docket Number: No. CIV 08–1101 JB/RLP.,CIV 08–1101 JB/RLP.
• Citation: 791 F.Supp.2d 1026
• Parties: GUIDANCE ENDODONTICS, LLC, a New Mexico Limited Liability Company, Plaintiff,v.DENTSPLY INTERNATIONAL, INC., a Delaware Business Corporation, and Tulsa Dental Products, LLC, a Delaware Limited Liability Company, Defendants,andDentsply International, Inc. and Tulsa Dental Products, LLC, Counter Plaintiffs,v.Guidance Endodontics, LLC and Dr. Charles Goodis, Counter Defendants.
• Court: U.S. District Court — District of New Mexico

791 F.Supp.2d 1026

GUIDANCE ENDODONTICS, LLC, a New Mexico Limited Liability Company, Plaintiff,

v.DENTSPLY INTERNATIONAL, INC., a Delaware Business Corporation, and Tulsa Dental Products, LLC, a Delaware Limited Liability Company, Defendants,andDentsply International, Inc. and Tulsa Dental Products, LLC, Counter Plaintiffs,

v.Guidance Endodontics, LLC and Dr. Charles Goodis, Counter Defendants.

No. CIV 08–1101 JB/RLP.

United States District Court, D. New Mexico.

May 9, 2011.

Kyle C. Bisceglie, Renee M. Zaystev, Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP, New York, NY, John J. Kelly, Donald A. DeCandia, Ryan Flynn, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, for Plaintiff and Counter Defendants.Brian M. Addison, Vice President, Secretary, and General Counsel, Dentsply International, Inc., York, PA, Thomas P. Gulley, Rebecca Avitia, Bannerman & Johnson, PA, Albuquerque, NM, R. Ted Cruz, Morgan Lewis & Bockius, LLP, Houston, TX, Howard M. Radzely, W. Brad Nes, Morgan Lewis & Bockius, LLP, Washington, D.C., for Defendants and Counter Plaintiffs.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on Dentsply/TDP's Motion for Remittitur, or, In the Alternative, For a New Trial Under Rule 59, filed April 28, 2010 (Doc. 549)(“Motion for Remittitur”). The Court held a hearing on September 1, 2010. The central question before the Court is whether the punitive damages award of $40,000,000.00 is so excessive that the Defendants failed to receive fair notice that their conduct would subject them to such a severe penalty. See BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). The primary issues are (i) whether the Defendants' conduct is sufficiently reprehensible to support the punitive damages award; (ii) whether the ratio of compensatory damages to punitive damages—in this case approaching 1:10—is excessive; and (iii) whether the punitive damages award is an outlier, or “the difference between this remedy and the civil penalties authorized or imposed in comparable cases,” BMW of N. Am., Inc. v. Gore, 517 U.S. at 574, 116 S.Ct. 1589, is so great as to render the award unconstitutional. Because each of the Supreme Court of the United States' guideposts counsels in favor of remittitur, the Court finds that the punitive damages award is constitutionally excessive and will therefore grant the Defendants' Motion.

FACTUAL BACKGROUND

This lawsuit arises out of a business dispute between Plaintiff and Counter–Defendant Guidance Endodontics, LLC, a small endodontic equipment company that Counter–Defendant Dr. Charles Goodis owns, and the much larger Defendants and Counter–Plaintiffs Dentsply International, Inc. and Tulsa Dental Products, LLC (collectively, “the Defendants”), who are both Guidance Endodontics' rivals and its suppliers. The Defendants are manufacturers and suppliers of certain endodontic instruments—including endodontic files, obturators, and ovens—that compete with Guidance Endodontics' products. Guidance and the Defendants were parties to a Manufacturing and Supply Agreement, which arose as a settlement of a separate intellectual-property dispute. The Supply Agreement required the Defendants to supply Guidance with endodontic instruments, which Goodis designed and which Guidance Endodontics planned to sell to end-users.

Guidance Endodontics began selling its endodontic products at extremely low prices compared to the prices that the Defendants charged for the same or similar products. According to Guidance Endodontics' allegations and the jury's findings as reflected in its verdict, the Defendants stopped supplying endodontic obturators to Guidance Endodontics as a dirty business tactic to keep Guidance from underselling them in the marketplace. In addition to ceasing the supply of obturators, the Defendants refused to manufacture a new endodontic file that Goodis designed—the V2 file—which Guidance Endodontics intended to sell. Finally, the Defendants, who dominate the endodontics instrument market, initiated an organized marketing campaign to drive Guidance Endodontics out of business. Specifically, the Defendants' sales staff falsely represented to actual and potential Guidance Endodontics customers that Guidance was no longer able to supply endodontic files. Based on these three categories of conduct, Guidance Endodontics filed this suit.

PROCEDURAL BACKGROUND

After a three-week jury trial, see Clerk's Minutes at 1, filed Sept. 21, 2009 (Doc. 439), the jury in this matter found that the Defendants breached their Manufacturing and Supply Agreement with Guidance in two ways: (1) by ceasing the supply of obturators to Guidance Endodontics, and (2) by refusing to manufacture Guidance Endodontics' newly designed V2 file. See Redacted Jury Verdict at 2 (filed October 9, 2009)(Doc. 441). The jury also found that the Defendants breached the implied covenant of good faith and fair dealing and committed a willful violation of the New Mexico Unfair Practices Act, NMSA 1978, § 57–12–1 through –26 (1967). See Redacted Jury Verdict at 2–3. As compensatory damages, the jury awarded $4.08 million related to the Defendants' refusal to manufacture the V2 file. See Redacted Jury Verdict at 4. The jury awarded $200,000.00 in “nominal damages” related to the Defendants' failure to provide obturators. See Redacted Jury Verdict at 4–5. Finding that the Defendants' breach of the implied covenant of good faith and fair dealing was in bad faith and that Guidance Endodontics was entitled to punitive damages for the Defendants' breach of contract, the jury awarded Guidance Endodontics $40,000,000.00 in punitive damages. See Redacted Jury Verdict at 5–6.

The Defendants in this case alleged that Guidance Endodontics fraudulently induced them to enter the Manufacturing and Supply Agreement; breached the Manufacturing and Supply Agreement; and engaged in false advertising, trademark infringement, misappropriation of trade values, and unfair competition. See Redacted Jury Verdict at 1, 6–7. The jury found that Guidance Endodontics had committed no fraudulent inducement, no trademark infringement, no unfair competition, and no misappropriation of trade values. See Redacted Jury Verdict at 6–7. Although the jury found that Guidance Endodontics breached the Manufacturing and Supply Agreement, it determined that the Defendants suffered no damages as a result. See Redacted Jury Verdict at 6. However, the jury awarded $93,000.00 in compensatory damages in favor of the Defendants and against Guidance Endodontics on the Defendants' claim of false advertising. See Redacted Jury Verdict at 6–8.

In their Motion for Remittitur, the Defendants argue that the punitive damages award in this case is unconstitutionally excessive under each of the Supreme Court's three guideposts. See Motion for Remittitur at 2 (referring to BMW of N. Am., Inc. v. Gore, 517 U.S. at 575, 116 S.Ct. 1589). First, the Defendants argue their conduct in this case is “not sufficiently reprehensible to justify a $40 million punitive damages award.” See Motion for Remittitur at 2. Specifically, the Defendants note that their conduct “did not result in any physical harm and did not demonstrate an indifference to or reckless disregard for the health and safety of others.” Id. Particularly in contract cases, “where the parties can and should contractually protect themselves by providing for explicit remedies in the event of breach, the permissible ratio of punitive damages to actual damages should be relatively modest.” Motion for Remittitur at 4 (quoting FDIC v. Hamilton, 122 F.3d 854, 862 (10th Cir.1997)). The Defendants also contend that factors the Supreme Court has identified as relevant to reprehensibility do not support punitive damages on the order of a 10:1 ratio of punitive to compensatory damages. See Motion for Remittitur at 7–9. For instance, the Defendants argue that Guidance Endodontics is not financially vulnerable given that Counter–Defendant Goodis' annual income as an endodontist “approached or exceeded $1 million per year.” See Motion for Remittitur at 7 (citing Morgan v. New York Life Ins. Co., 559 F.3d 425, 442 (6th Cir.2009) (“Based on [plaintiff's] salary [of $500,000.00 to $1,000,000.00 a year] ... and the $6,000,000 compensatory damages award ... it would seem to be a stretch to describe him as financially vulnerable.”)). The Defendants also claim that their conduct does not involve repeated action, but instead a single contractual relationship. See Motion for Remittitur at 8 (citing FDIC v. Hamilton, 122 F.3d at 862 (“Although the dispute concerning the bank's performance of its promises stretched out over some time, the alleged act of fraud— the making of a contractual promise to make certain repairs—was a single event arising from a single contractual relationship.” (emphasis in Motion for Remittitur))). Finally, whereas the Defendants acknowledge that the jury in this case found that the Defendants acted with malice, trickery, or deceit, the Defendants claim that “courts have not hesitated to significantly remit punitive damages awards despite the tautological fact of a jury finding of willfulness and deceit.” Motion for Remittitur at 8 (citing Inter Med. Supplies, Ltd. v. EBI Med. Sys., Inc., 181 F.3d 446, 467 (3d Cir.1999)).

The Defendants argue, with respect to the second guidepost identified by the Supreme Court in BMW of North America, Inc. v. Gore, that in cases featuring a significant compensatory damages award, “a ration of punitive-to-compensatory damages larger than 1:1 should not be upheld.” See Motion for Remittitur at 2. The Defendants point to the Supreme Court's opinion in State Farm Mutual Automobile Insurance Co. v. Campbell, wherein the Court stated: “When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process...