Lenox Maclaren Surgical Corp. v. Medtronic, Inc.
| Decision Date | 15 November 2011 |
| Docket Number | No. 11-1251,D.C. No. 1:10-CV-02139-RPM (D. Colo),11-1251 |
| Parties | LENOX MACLAREN SURGICAL CORPORATION, a Colorado corporation, Plaintiff- Appellee, v. MEDTRONIC, INCORPORATED, a Minnesota corporation; MEDTRONIC SOFAMOR DANEK, INCORPORATED, an Indiana corporation; MEDTRONIC PS MEDICAL, INCORPORATED, d/b/a Medtronic Neurologic Technologies, a California corporation; MEDTRONIC SOFAMOR DANEK CO., LTD., a Japanese corporation, Defendants- Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Before MURPHY, ANDERSON, and HARTZ, Circuit Judges.
In this interlocutory appeal, defendants (collectively referred to as the "Medtronic Defendants") appeal the district court's denial of their motion to compel plaintiff Lenox MacLaren Surgical Corporation ("LM") to arbitrate its antitrust claims against them even though none of the Medtronic Defendants signed the distribution and licensing agreement containing the arbitration provision. We affirm.
LM designed and manufactures a bone mill that grinds harvested bone for use in spinal implant surgeries. In April 2000, it entered into an exclusive licensing and distribution agreement ("Agreement") with Medtronic Sofamor Danek USA, Inc. ("MSD USA") for a term of five years. The Agreement gave MSD USA the right to make all decisions regarding marketing of the bone mill. It also required MSD USA to purchase 500 bone mills from LM in the first year and to purchase 100 bone mills per quarter thereafter to maintain its exclusive distribution rights. Included in the Agreement was a dispute-resolution clause pursuant to which the parties agreed to arbitrate "any dispute arising out of or relating to this Agreement." Aplts. App. at AA 184.
MSD USA purchased the first 500 bone mills from LM as required, but did not purchase any bone mills thereafter. LM therefore notified MSD USA in 2001 that its distribution rights were no longer exclusive. MSD USA marketed the 500 bone mills it purchased by selling or loaning them to doctors and hospitals in theUnited States and by selling them to its Japanese affiliate, defendant Medtronic Sofamor Danek Co., Ltd. ("Medtronic Japan"), which marketed them in Japan. Under its loaner program, MSD USA included LM's bone mill, free of charge, in packages of other surgical instruments and supplies used in spinal implant surgery that it provided to doctors and hospitals for a fee. After each surgery was completed, the bone mill and other instruments were returned to MSD USA to be sterilized and used again.
In 2006, after the Agreement had expired, MSD USA received complaints from several Japanese doctors that they had discovered metal shavings in the bone material being milled. Based on these complaints, MSD USA asked LM to recall its bone mills. LM refused to do so, believing the problem was caused by user error and could be remedied with additional instructions and warnings or, if necessary, replacement blades. After LM refused to recall the bone mills, MSD USA instituted its own recall in October 2006. Recall notices were sent to all of MSD USA's customers who had either bought or borrowed LM's bone mill. The customers were advised that the bone mill was being voluntarily recalled, that MSD USA representatives would collect the recalled bone mill, and that it would not be replaced with another bone mill, but customers would receive a credit toward future purchases with MSD USA. After MSD USA informed the FDA of the recall, the FDA conducted independent tests and informed LM that it need not recall the bone mills it had sold separately.
Several months after MSD USA instituted the recall, one of its affiliates, defendant Medtronic PS Medical Inc., began selling a stand-alone electric bone mill it had designed, called the Midas Rex Legend. MSD USA customers who had purchased or used LM's bone mill were specifically targeted for sale of the new Midas Rex Legend bone mill.
In October 2007, LM sued MSD USA in federal court in Colorado, alleging claims for patent infringement, violation of the Colorado Consumer Protection Act (CCPA), and business disparagement/trade libel. LM alleged, among other things, that MSD USA's practice of loaning the bone mill to doctors and hospitals-which LM first learned of in 2006-was not permitted under the Agreement. LM alleged that by loaning its bone mill to doctors for use in thousands of surgeries, MSD USA created a market for a precision bone mill without actually filling it with LM's product. This, in turn, both deprived LM of significant potential income from future sales and provided an opportunity for the competing Midas Rex Legend bone mill to enter the market. LM further alleged that the recall was improper because there was nothing wrong with its bone mill. LM pointed to a variety of improprieties concerning the recall, including MSD USA's reliance on tests that supposedly confirmed the reported problems but that MSD USA knew were faulty, and MSD USA's decision to recall the bone mills without exploring other alternatives.
The loaner program and the recall formed the basis of LM's three claims in Lenox I. LM alleged that because the Agreement permitted MSD USA only to sell, not to loan, LM's bone mill to others, the doctors and hospitals who borrowed the bone mill infringed LM's patent and MSD USA contributed to their infringement. LM also alleged that MSD USA engaged in unfair and deceptive trade practices by knowingly making misrepresentations about LM's bone mill in the recall notice in violation of the CCPA, and that MSD USA's disparaging statements were designed to and had the effect of harming LM's business, constituting actionable business disparagement or trade libel.
MSD USA moved to compel arbitration of LM's claims pursuant to the Agreement, and the district court granted the motion. In its arbitration demand, LM expanded the scope of its claims, adding claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, intentional interference with a contract, fraudulent inducement, fraudulent misrepresentation and concealment, intentional interference with prospective economic relations, fraud, and unfair competition. LM later dropped its CCPA claim.
The arbitrators determined, among other things, that MSD USA neither breached the Agreement nor infringed LM's patent by instituting the loaner program. The arbitrators further determined, however, that MSD USA intentionally interfered with LM's prospective economic relations by instituting the recall. They noted it was to MSD USA's competitive advantage to clear themarket of LM's bone mill and then fill the void with the Midas Rex Legend bone mill, and they found numerous improprieties in the recall. The arbitrators therefore concluded that MSD USA's conduct surrounding the recall was both intentional and wrongful. The arbitrators awarded LM damages for MSD USA's tortious interference by calculating the profits made after the recall on the sale of Midas Rex bone mills to customers who had previously bought or borrowed LM's bone mill.1 MSD USA paid the arbitration award, and the district court dismissed the underlying action. Less than three months later, LM filed the present lawsuit.
LM contends that when it filed Lenox I, it thought MSD USA was the sole perpetrator of the wrongful conduct it alleged. LM learned that other Medtronic entities were involved only late in the discovery process, when it was too late to add them to the proceedings. Among other things, LM learned that defendant Medtronic, Inc., the overall parent corporation, made the actual decision to recall LM's bone mills and that defendant Medtronic PS Medical, Inc. designed and manufactured the Midas Rex Legend bone mill and targeted its sales to former LM-bone-mill customers. LM sued these two companies as well as MSD USA's immediate parent company, Medtronic Sofamor Danek, Inc. (a wholly owned subsidiary of Medtronic, Inc.), and Medtronic Japan. LM asserted four claims forrelief, but following motions in the district court, only two claims remain: for monopolization and, alternatively, for attempted monopolization in violation of the Sherman Antitrust Act.
In its complaint, LM refers to all the defendants collectively as either "Medtronic" or the "Medtronic Defendants." Its factual allegations are similar to those in the Lenox I complaint, except that "Medtronic" or the "Medtronic Defendants," rather than MSD USA, is named as the principal actor. In both of its antitrust claims, LM alleges that the Medtronic Defendants engaged in the following "array of anticompetitive, predatory, and exclusionary conduct":
Id. at AA 39 (monopolization); see also id. at AA 41 (attempted monopolization).
The Medtronic Defendants moved to compel arbitration, arguing that LM's antitrust claims are within the scope of the arbitration clause in the Agreement and that even though the Medtronic Defendants did not sign the Agreement, LM should be equitably estopped from avoiding arbitration of its antitrust claims.After briefing and a hearing, the district court denied the Medtronic Defendants' motion.
We ordinarily review a district court's order denying or compelling arbitration under a de novo standard. See, e.g., 1mage Software, Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044, 1055 (10th Cir. 2006). Because estoppel is an equitable theory, however, two circuits have held that when a district court rul...
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