Medtronic Navigation, Inc. v. St. Louis Univ.
| Decision Date | 23 September 2013 |
| Docket Number | Civil Action No. 12-cv-02445-PAB-MJW,Civil Action No. 12-cv-01706-PAB-MJW |
| Parties | MEDTRONIC NAVIGATION, INC., a Delaware Corporation, Plaintiff, v. SAINT LOUIS UNIVERSITY, a Missouri benevolent corporation, Defendant. SAINT LOUIS UNIVERSITY, a Missouri benevolent corporation, Plaintiff, v. MEDTRONIC NAVIGATION, INC., a Delaware Corporation, and MEDTRONIC SOFAMOR DANEK, INC., an Indiana Corporation, Defendants. |
| Court | U.S. District Court — District of Colorado |
ORDER
This matter is before the Court on Defendant Medtronic Sofamor Danek, Inc.'s Motion to Dismiss [Docket No. 44] filed on February 19, 2013 in Case No. 12-cv-02445-PAB-MJW. Defendant Medtronic Navigation, Inc. ("Medtronic") is a Delaware corporation with its principal place of business in Colorado. Docket No. 40 at 1, ¶ 2. Medtronic Sofamor Danek, Inc. ("Sofamor Danek") is an Indiana corporation with its principal place of business in Tennessee and is the parent company of Medtronic. Docket No. 40 at 2, ¶ 3. This case concerns the allegations of plaintiff Saint Louis University ("SLU") arising out of the alleged breach of a licensing agreement for medicaltechnology. Sofamor Danek moves under Federal Rule of Civil Procedure 12(b)(6) to dismiss SLU's claims for tortious interference with contract, unjust enrichment, fraud, and piercing the corporate veil and moves under Rule 12(b)(1) to dismiss SLU's claim for a declaratory judgment.
Dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1) is appropriate if the Court lacks subject matter jurisdiction over claims for relief asserted in the complaint. Rule 12(b)(1) challenges are generally presented in one of two forms: "[t]he moving party may (1) facially attack the complaint's allegations as to the existence of subject matter jurisdiction, or (2) go beyond allegations contained in the complaint by presenting evidence to challenge the factual basis upon which subject matter jurisdiction rests." Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072, 1074 (10th Cir. 2004) (quoting Maestas v. Lujan, 351 F.3d 1001, 1013 (10th Cir. 2003)). When resolving a facial attack on the allegations of subject matter jurisdiction, the Court "must accept the allegations in the complaint as true." Holt v. United States, 46 F.3d 1000, 1002 (10th Cir. 1995). To the extent the defendant attacks the factual basis for subject matter jurisdiction, the Court "may not presume the truthfulness of the factual allegations in the complaint, but may consider evidence to resolve disputed jurisdictional facts." SK Finance SA v. La Plata Cnty., 126 F.3d 1272, 1275 (10th Cir. 1997). "Reference to evidence outside the pleadings does not convert the motion to dismiss into a motion for summary judgment in such circumstances." Id. Ultimately, and in either case, plaintiff has "[t]he burden of establishing subject matter jurisdiction"because it is "the party asserting jurisdiction." Port City Props. v. Union Pac. R.R. Co., 518 F.3d 1186, 1189 (10th Cir. 2008).
The Court's function on a Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim. FED. R. CIV. P. 12(b)(6); Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations omitted). In doing so, the Court "must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff." Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (quotation marks and citation omitted). At the same time, however, a court need not accept conclusory allegations. Moffett v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).
Generally, "[s]pecific facts are not necessary; the statement need only 'give the defendant fair notice of what the claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The "plausibility" standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible. Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). However, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted). Thus, even though modern rules of pleading aresomewhat forgiving, "a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Bryson, 534 F.3d at 1286 (quotation marks and citation omitted).
"[I]n general, a motion to dismiss should be converted to a summary judgment motion if a party submits, and the district court considers, materials outside the pleadings." Prager v. LaFaver, 180 F.3d 1185, 1188 (10th Cir. 1999); FED. R. CIV. P. 12(d). However, a court may properly consider facts subject to judicial notice, state court pleadings, and matters of public record without converting a motion to dismiss into a motion for summary judgment. Pace v. Swerdlow, 519 F.3d 1067, 1072 (10th Cir. 2008). In addition, "the district court may consider documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity." Alvarado, 493 F.3d at 1215.
The following facts are drawn from the second amended complaint and, for the purpose of ruling on Sofamor Danek's motion to dismiss, assumed to be true.1 In March 1994, SLU entered into a licensing agreement with Stealth Technologies, Inc. ("Stealth"), a predecessor of Medtronic Navigation.2 Docket No. 40 at 2, ¶ 8. Pursuantto the licensing agreement, Stealth was required to pay SLU a royalty of 2% on net sales of licensed products sold by Stealth or its sublicensees. Docket No. 40 at 2, ¶ 9. The licensing agreement required Stealth to deliver a copy of each sublicensing agreement to SLU within thirty days of execution. Docket No. 40 at 3, ¶ 12. On February 28, 1995, SLU and Stealth amended the licensing agreement to increase the royalty payment to 2.33% of net sales and to permit Stealth to transfer its rights and obligations under the licensing agreement to Surgical Navigation Technologies, Inc. ("SNT"), also a predecessor of Medtronic Navigation. Docket No. 40 at 3, ¶¶ 14-16.
In June 1995, SNT began selling licensed products and, in October 1995, it began making royalty payments to SLU. Docket No. 40 at 4, ¶¶ 23-24. The royalty statements indicated that a 2.33% royalty was being paid to SLU on "net sales" of licensed products. Docket No. 40 at 4, ¶ 25. From 1998 through 2006, the royalty statements stated that a royalty of 2.33% was being paid on the "Extended SNT Sale Price." Docket No. 40 at 4, ¶ 28.
In June 2006, SLU hired Pricewaterhouse Coopers LLP ("PwC") to audit Medtronic's royalty payments. Docket No. 40 at 4, ¶ 29. In conducting its fieldwork, PwC "learned that Medtronic had been calculating royalties under the Agreement at 2.33% of a transfer price agreed upon between Medtronic and Medtronic Sofamor Danek, rather than the much higher Net Selling Price invoiced to customers." Docket No. 40 at 5, ¶ 30. "PwC calculated that royalties were underpaid during that time in theamount of $1,200,558." Docket No. 40 at 5, ¶ 31. The PwC audit was not completed because Medtronic withheld necessary documents, but "this information would have revealed further deficiencies in Medtronic's royalty payments."3 Docket No. 40 at 5, ¶¶ 32-35.
In February 2007, SLU's representatives corresponded with John Thompson, in-house counsel for Medtronic, "who indicated that certain transfer/distribution agreements between Medtronic Navigation and Medtronic Sofamor Danek controlled the basis upon which royalties were calculated." Docket No. 40 at 5, ¶ 36. Mr. Thompson provided SLU "two severely redacted agreements between SNT and two different Sofamor Danek entities." Docket No. 40 at 6, ¶ 37. These agreements were an Exclusive License Agreement between SNT and Sofamor Danek Properties, Inc. and a Manufacturing Agreement between SNT and Danek Medical, Inc. Docket No. 40 at 6, ¶¶ 38-39. The redactions obscured "the majority of the material terms of the agreements, such that SLU was unable to comprehend or analyze the agreements or their terms." Docket No. 40 at 6, ¶ 41.
The Exclusive License Agreement and the Manufacturing Agreement arose out of Sofamor Danek's purchase of SNT. Docket No. 40 at 8, ¶ 61. At the time of the purchase, the two entities entered into an "earnout" agreement whereby Sofamor Danek agreed to make future payments to former shareholders of SNT contingent on SNT generating certain levels of revenue and earnings on sales of the licensedproducts. Docket No. 40 at 8, ¶¶ 53-54. In order to ensure that SNT would meet its targets, the former SNT shareholders negotiated with Sofamor Danek to artificially reduce the royalty payments that SNT was required to make pursuant to the licensing agreement. Docket No. 40 at 8, ¶ 60. These negotiations resulted in the Exclusive License Agreement and the Manufacturing Agreement between SNT and Sofamor Danek. Docket No. 40 at 8, ¶ 61. These agreements were not provided to SLU, in violation of the licensing agreement. Docket No. 40 at 9, ¶ 63. However, Sofamor Danek was in possession of the licensing agreement, and aware of its terms, when it entered into these side agreements with SNT and its former shareholders. Docket No. 40 at 6-7, ¶¶ 45-49.
In August 2007, Medtronic altered its royalty reports to state that royalties were being calculated based on "total sales."...
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