Guidance Endodontics Llc v. Dentsply Int'l Inc.

Decision Date14 October 2010
Docket NumberNo. CIV 08–1101 JB/RLP.,CIV 08–1101 JB/RLP.
Citation749 F.Supp.2d 1235
PartiesGUIDANCE 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.
CourtU.S. District Court — District of New Mexico

OPINION TEXT STARTS HERE

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, Howard M. Radzely, W. Brad Nes, Morgan Lewis & Bockius, LLP, Washington, DC, R. Ted Cruz, Morgan Lewis & Bockius, LLP, Houston, TX, Thomas P. Gulley, Rebecca Avitia, Lewis and Roca, LLP, Albuquerque, NM, 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 to Set Aside the Punitive Damages Award and the Breach of Implied Covenant Verdict and for Judgment Notwithstanding the Verdict, filed October 30, 2009 (Doc. 454). The Court held a hearing on this motion on March 22, 2010. The primary issues are: (i) whether the Court should vacate a punitive-damages verdict of $40,000,000.00 in a breach-of-contract suit under Delaware law because the independent tort, which permitted punitive damages in a breach-of-contract action, was limited to $300.00 in punitive damages; (ii) whether the Court should vacate that punitive damages award because there was no tort claim upon which to base a punitive damages award, i.e., because neither Plaintiff Guidance Endodontics, LLC's claim under the New Mexico Unfair Practices Act, NMSA 1978, §§ 57–12–1 through 57–12–26 (“NMUPA”), nor its claim for breach of the implied covenant of good faith and fair dealing, was a tort claim; (iii) whether the Court should vacate the jury's verdict on Guidance's breach-of-implied-covenant claim because Guidance failed to establish all the elements of that claim; and (iv) whether the Court committed harmful error by giving Instruction No. 37 to the jury. Many of the issues that the Defendants Dentsply International, Inc., and Tulsa Dental Products, LLC, raise have been forfeited or waived, and those that have been preserved lack a sound basis in the law or in the facts of this case. Those issues that have not been forfeited do not rise to the level of plain error. The Court will thus deny the Defendants' motion.

FACTUAL BACKGROUND

This suit arises from a contract dispute that Guidance, a small endodontic-equipment company, has brought against the Defendants, who were both Guidance's rivals and its suppliers. More background on the lawsuit is set forth in one of the Court's earlier opinions. See Guidance Endodontics, LLC v. Dentsply Int'l, Inc., 633 F.Supp.2d 1257, 1260–67 (D.N.M.2008) (Browning, J.). The Defendants are manufacturers and suppliers of a variety of endodontic products that compete with Guidance's products, including endodontic obturators, files, and ovens.1 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 files, obturators, and ovens, which Guidance would then sell to end-users.

Guidance began selling those endodontic products at extremely low prices compared to the prices that the Defendants charged for the same or similar products. Allegedly as a dirty business tactic to keep Guidance from underselling them in the marketplace, the Defendants stopped supplying endodontic obturators to Guidance. The Defendants told Guidance that they were ceasing to supply obturators because they heard that Guidance was telling its current and potential customers that the Defendants manufactured the products, which, they alleged, was in violation of the Supply Agreement. In addition to ceasing the supply of obturators, the Defendants refused to manufacture a new endodontic file—the V2 file—which Guidance intended to sell.2 The Defendants asserted that the Supply Agreement required Guidance to supply them with detailed engineering drawings before they were obligated to supply the V2 file. Guidance disputed that the Supply Agreement required it to provide engineering drawings as a prerequisite to the Defendants producing the V2. Finally, the Defendants initiated an organized marketing campaign to drive Guidance out of business, which included the Defendants' sales staff falsely representing to actual and potential Guidance customers that Guidance was no longer able to supply endodontic files. Based on these three categories of conduct, Guidance filed this suit.

PROCEDURAL BACKGROUND

On November 21, 2008, Guidance filed a Verified Complaint and Demand for Jury Trial. In the Complaint, Guidance made seven claims for relief: (i) breach of contract based on the Defendants' refusal to supply obturators, see Complaint ¶¶ 158–68, at 30–31; (ii) breach of contract based on the Defendants' refusal to supply endodontic files, see Complaint ¶¶ 169–79, at 31–32; (iii) breach of the implied covenant of good faith and fair dealing, see Complaint ¶¶ 180–87, at 32–33; (iv) violation of the Delaware Deceptive Trade Practices Act, see Complaint ¶¶ 188–97, at 33–34; (v) violation of the NMUPA, see Complaint ¶¶ 198–207, at 34–35; (vi) violation of § 43(a)(1)(B) of the Lanham Act, see Complaint ¶¶ 208–16, at 35–36; and (vii) tortious interference with existing and prospective contractual relations, see Complaint ¶¶ 217–26, at 36–37. On the way to trial, the Court dismissed several of these claims.

1. Proposed Instructions and Verdict Form, and the Court's Adoption Thereof.

On September 15, 2009, the Defendants filed a set of proposed jury instructions. One of those was an instruction on the Defendants' claim against Guidance for a breach of the implied covenant of good faith and fair dealing. That instruction read:

Every contract, including the one in this case, contains an implied covenant of good faith and fair dealing. This covenant requires the parties to the contract to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain. A party is liable for breaching the implied covenant of good faith and fair dealing if you find that its conduct frustrates the overarching purpose of the contract and that such action actually or nominally damaged the other party.

In this case, Guidance is liable for breach of the implied covenant of good faith and fair dealing if you find that it acted arbitrarily or unreasonably, its conduct prevented Dentsply and/or Tulsa Dental from receiving the fruits of the contract, and Guidance's actions actually or nominally damaged Dentsply and/or Tulsa Dental.

Dentsply/TDP's Proposed Jury Instructions, Instruction No. 8, at 9, filed September 15, 2009 (Doc. 330). The Defendants' proposed jury instruction on punitive damages did not mention their implied-covenant claim. See Dentsply/TDP's Proposed Jury Instructions, Instruction No. 45, at 51.

Shortly thereafter, on September 28, 2009, the Defendants submitted a proposed verdict form. See Dentsply/TDP's Proposed Verdict Form for Claims Asserted by Dentsply/TDP, filed September 28, 2009 (Doc. 370). The proposed verdict form contains the following questions regarding punitive damages and breach of the implied covenant of good faith and fair dealing:

Breach of Implied Covenant of Good Faith and Fair Dealing

(6) Do you find that Guidance breached the implied covenant of good faith and fair dealing?

____ YES ____ NO

If your answer to Question No. 6 is “YES,” go on to Question No. 7. If your answer to Question No. 6 is “No,” go to Question No. 11.

(7) Do you find that Dentsply and/or Tulsa Dental have suffered actual or nominal damages as a result of Guidance's conduct?

____ YES ____ NO

If your answer to Question No. 7 is “YES,” go on to Question No. 8. If your answer to Question No. 7 is “No,” go on to Question No. 11.

(8) In a lump sum, state the amount of actual or nominal damages you award Dentsply and Tulsa Dental

$______

Go on to Question No. 9.

(9) Do you find that Guidance's breach of the implied covenant of good faith and fair dealing was in bad faith?

____ YES ____ NO

If your answer to Question No. 9 is “YES,” go on to Question No. 10. If your answer to Question No. 9 is “No,” go to question No. 11.

(10) In a lump sum, state the amount of punitive damages you award Dentsply and Tulsa Dental.

$______

Dentsply/TDP's Proposed Verdict Form for Claims Asserted by Dentsply/TDP at 3. This set of jury questions would allow the jury to award punitive damages to the Defendants based solely on a bad-faith breach of the implied covenant of good faith and fair dealing.

The Court adopted the Defendants' proposed jury questions into its First and Second Proposed Verdict Forms. See Court's First Proposed Verdict Form at 7, filed October 1, 2009 (Doc. 393); Court's Second Proposed Verdict Form at 3, 6, filed October 6, 2009 (Doc. 424). The Court's Second Proposed Verdict Form adopted the Defendants' questions as a predicate for punitive damages with respect to both Guidance's implied-covenant claim against the Defendants, and the Defendants' implied-covenant counterclaim against Guidance:

Predicate for Punitive Damages for Breach of Implied Covenant of Good Faith and Fair Dealing

12. Do you find Dentsply and/or Tulsa Dental's breach of the implied covenant of good faith and fair dealing was in bad faith?

* * * *

Predicate Question for Punitive Damages for Breach of Implied Covenant of...

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