Guidance Endodontics v. Dentsply Intern., Inc.

• Decision Date: 15 December 2008
• Docket Number: No. CIV 08-1101 JB/RLP.,CIV 08-1101 JB/RLP.
• 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.
• Court: U.S. District Court — District of New Mexico

633 F.Supp.2d 1257

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.

No. CIV 08-1101 JB/RLP.

United States District Court, D. New Mexico.

December 15, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kyle C. Bisceglie, Renee M. Zaytsev, Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP, New York, NY, John J. Kelly, Ryan Flynn, Adam Greenwood, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, for Plaintiff.

Thomas P. Gulley, Lewis and Roca, Albuquerque, NM, for Defendants.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on the Plaintiff's Application for Temporary Restraining Order, filed November 21, 2008 (Doc. 2)("TRO Application"). The Court held evidentiary hearings on November 25 and 26, and on December 1, 5 and 8, 2008. The primary issue is whether the Court should enter a temporary restraining order ("TRO") requiring Defendants Dentsply International, Inc. and Tulsa Dental Products, LLC, to immediately commence manufacture, and thereafter ship without delay, two outstanding purchase orders that the Defendants received. Because Plaintiff Guidance Endodontics, LLC has carried its burden with respect to one aspect of the requested TRO, which the Court concludes is not a disfavored form of relief, the Court will grant the TRO Application in part. Because, however, part of the requested relief is mandatory and alters the status quo, and because Guidance has not carried its burden on this disfavored relief, the Court will also deny the TRO Application in part.

FACTUAL BACKGROUND

This case concerns an action that Guidance has brought against the Defendants for breach of contract and unfair trade practices. Guidance, like the Defendants, sells endodontic equipment. Following a lawsuit and settlement, however, the Defendants became the exclusive manufacturer of Guidance products, and Guidance also received access to certain endodontic supplies it had never before been able to sell. This arrangement worked well for a short time, but soon ran into trouble. The Defendants ceased providing certain supplies to Guidance, asserting that Guidance had been informing potential and existing customers that the Defendants were manufacturing Guidance's product, in breach of the confidentiality provisions in their contract. Guidance denies any wrongdoing, and asserts that the Defendants are the ones in breach of the contract because of their failure to provide supplies and because of what Guidance alleges are unreasonable and unprecedented demands for engineering drawings for the development of a new product. Guidance believes that the Defendants, whose endodontic supplies empire is vastly larger than Guidance's slim slice of the market, are attempting to drive Guidance out of business. Guidance, fearing that it is on the verge of financial ruin, filed this lawsuit and seeks a TRO to prevent the Defendants from continuing to breach their agreement with Guidance.

1. Guidance, Dentsply, and the Market for Endodontic Instruments.

Endodonists specialize in root canal therapy and root canal surgery, and use their special training and experience to treat difficult cases that general dentists refer to them. See Verified Complaint and Demand for Jury Trial ¶ 9, at 3, filed November 21, 2008 (Doc. 1)("Complaint"). This specialized practice requires specialized tools, including three basic tools: (i) obturators; (ii) files, and (iii) ovens. See id. During a root canal, after the nerve is removed from the tooth, files are used to shape the tooth canal. The obturator is used to fill the tooth canal, and the oven heats the obturator to prepare for this operation. See id. ¶ 109, at 22. All three instruments thus work together and are key to any endodontist's practice.

Most dentists maintain a limited inventory of endodontic instruments. They expect their endodontic supplier to ship promptly. See Declaration of Charles J. Goodis in Support of Plaintiff's Application for Temporary Restraining Order ¶ 34, at 8, filed November 21, 2008 (Doc. 5)("Goodis Decl."). Dr. Charles J. Goodis, Guidance's founder and chief executive officer, estimates that approximately 50,000 dentists use endodontic products in their practices. See id. ¶ 18, at 4. Dr. Goodis estimates that 5,000 of these users are large-volume users, such as HMOs or corporate practices with multiple offices. See id. at 4-5. The market for obturators alone is worth approximately fifty million dollars. The total domestic endodontics market is approximately $300 million per year. See id. ¶ 15, at 4.

Guidance is a company that Dr. Goodis founded in September 2004. See id. ¶ 4, at 2. Dr. Goodis invested seven million dollars of his money in Guidance. See id. ¶ 5, at 5. Guidance currently has three full-time employees in addition to Dr. Goodis. See id. Guidance currently has about 5,400 customers. See id. ¶ 15, at 4. Using his training and experience as an endodontist and as a mechanical engineer, Dr. Goodis developed several innovative endodontic products for Guidance, including: (i) the V-Taper NiTi Rotary File ("V-Taper"); (ii) the EndoTaper 06 NiTi Rotary Files ("EndoTaper"); (iii) the OneFill Obturation System ("OneFill Obturator"); and (iv) the Guidance Obturator Oven. See Goodis Decl. ¶¶ 5-7, at 2; Complaint ¶¶ 10, 16-18, at 3-4. Most recently, Dr. Goodis has begun developing the V2 04 Taper File ("V2"). See id. ¶ 8, at 2.

Dentsply is a public company that has been in existence for over one-hundred years and has thousands of employees. It supplies approximately eighty percent of the endodontic products sold annually in the United States and Canada, and holds itself out as the largest manufacturer of products for the dental market, with annual sales over $2.3 billion. See id. ¶ 13, at 4.

2. Dentsply Becomes Guidance's Manufacturer.

Guidance's initial manufacturer was a French company known as Micro-Mega. See Complaint ¶ 12, at 4. In July 2007, Dentsply initiated an investigation against both Guidance and Micro-Mega before the United States International Trade Commission (the "ITC case"). Dentsply dropped the ITC case in February 25, 2008, apparently after Micro-Mega and Dentsply reached an agreement. See id. ¶ 38, at 8. On January 24, 2008, Dentsply commenced a patent infringement lawsuit against Guidance in the United States District Court for the Middle District of Pennsylvania. See id. ¶ 39, at 9. Guidance and Dentsply settled that case on July 29, 2008. See id. As consideration for the settlement, Guidance and Dentsply entered into the Manufacturing and Supply Agreement ("Supply Agreement"). See id. ¶ 41, at 9. Guidance has already spent more on legal fees defending itself in the ITC case and the patent case than it has made in net profit since opening its doors four years ago. See id. ¶ 120, at 24. In addition to being a competitor of Guidance, the Defendants are also Guidance's sole and exclusive manufacturer under the Supply Agreement.

3. Guidance's Purchase Orders.

After the parties executed the Supply Agreement on July 29, 2008, Guidance submitted its initial orders for endodontic products, which the Defendants promptly filled. Specifically, the Defendants filled a July 30, 2008 purchase order for OneFill Obturators, which Guidance received less than thirty days later on August 26, 2008. See Exhibit 4 to Complaint, Guidance Endodontics Purchase Order (Doc. 1-3).

Likewise, on July 29, 2008, Guidance submitted a purchase order for EndoTapers, and Guidance received a partial shipment of EndoTapers on September 30, 2008—thirty days later—and additional shipments fully satisfying the order on October 17 and October 21, 2008. This TRO involves two purchase orders made more than two months ago.¹ See Complaint ¶ 135, at 26. Guidance gave the Defendants two subsequent orders: (i) a second purchase order sent to and received by the Defendants on July 30, 2008 for OneFill Obturators (order # DENT 100108—the "Obturator Order") for eventual shipment to Guidance during the fourth calendar quarter; and (ii) an order sent to and received by the Defendants on September 2, 2008 for V2 endodontic files (order # DENT 100308—the "V2 Order"), also for shipment to Guidance during the fourth quarter. See Complaint ¶¶ 58, 92, at 13, 19.

One of the Defendants' customer-service representatives subsequently confirmed to Guidance that the Obturator Order would be shipped on November 13, 2008. See id. ¶ 60, at 13. In two letters dated September 25, 2008, however, the Defendants stated that they did not intend to fill the Obturator Order. See id. ¶¶ 60-68, at 13-15. One letter stated that Guidance's marketing was in violation of the Supply Agreement because, among other things, Guidance was disclosing that the Defendants made Guidance files and obturators, and that their products were the same. See Complaint ¶ 62, at 13-14.

On or about September 2, 2008, Guidance submitted "product specifications" for the V2, and a prototype acceptable to Guidance was developed at the plant. Id. ¶¶ 92, 102, at 19, 21. Subsequently, senior management advised Guidance that, to fill the V2 Order, Guidance must provide detailed "engineering drawings." Because Guidance had not done so, the Defendants, in two separate communications, refused to acknowledged receipt of the V2 Order, and refused to manufacture or ship it to Guidance. See id. ¶¶ 91-98, at 19-21.

4. The Dispute Over the Development of the V2.

To develop the V2, which is a new product, Guidance provided product specifications to the Defendants' employees at their Johnson City, Tennessee plant. In connection with the first two prototypes of the V2, Guidance submitted "product specifications" by communicating written, technical parameters for the products to the Defendants, and speaking with...