Vitaform, Inc. v. Aeroflow, Inc.
| Decision Date | 27 October 2022 |
| Docket Number | 19 CVS 3707 |
| Citation | 2022 NCBC 65 |
| Parties | VITAFORM, INC. d/b/a BODY AFTER BABY, Plaintiff, v. AEROFLOW, INC. and MOTIF MEDICAL, LLC, Defendants. |
| Court | Superior Court of North Carolina |
2022 NCBC 65
VITAFORM, INC. d/b/a BODY AFTER BABY, Plaintiff,
v.
AEROFLOW, INC. and MOTIF MEDICAL, LLC, Defendants.
No. 19 CVS 3707
Superior Court of North Carolina, Buncombe
October 27, 2022
Smith DeVoss, PLLC, by Jeffrey J. Smith and John R. DeVoss, and Wimer & Snider, P.C., by Jake A. Snider, for Plaintiff Vitaform, Inc. d/b/a Body After Baby.
Ward and Smith, P.A., by Joseph A. Schouten, Hayley R. Wells, and Jordan M. Spanner, for Defendants Aeroflow, Inc. and Motif Medical, LLC.
ORDER AND OPINION ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
Louis A. Bledsoe, III, Chief Business Court Judge
I.
FACTUAL AND PROCEDURAL BACKGROUND
1. THIS MATTER is before the Court upon Defendants Aeroflow, Inc. ("Aeroflow") and Motif Medical, LLC's ("Motif") (together, the "Defendants") Motion for Summary Judgment (the "Motion") pursuant to Rule 56 of the North Carolina Rules of Civil Procedure (the "Rule(s)") in the above-captioned case. (ECF No. 122.)
2. Having considered the Motion, the briefs, exhibits, and affidavits in support of and in opposition to the Motion, the arguments of counsel at the hearing on the Motion, and other appropriate matters of the record, the Court GRANTS in part and DENIES in part the Motion for the reasons set forth below.
3. "[I]in ruling on a motion for summary judgment[,] the trial judge does not make findings of fact, which are decisions upon conflicting evidence, but [the judge] may properly list the uncontroverted material facts which are the basis of [the judge's] conclusions of law and judgment." Rodgerson v. Davis, 27 N.C.App. 173, 178 (1975).
4. Plaintiff Vitaform, Inc. d/b/a Body After Baby ("BAB") is a California corporation that is wholly owned by Don Francisco ("Francisco"), its president and founder.[1] Francisco formed BAB "to target the maternity band market and to develop the market for post-partum compression garments."[2] Based on his experience in the durable medical equipment ("DME") industry, Francisco saw an opportunity to market "maternity compression wear that would include the application of an insurance payment model."[3]
5. After consulting with medical professionals, Francisco designed and developed a pre-birth maternity band, the "Motherload," and two compression garments for post-partum recovery, the "Angelica" and the "Sienna" (collectively, the
"Maternity Compression Garments"), which were designed to address specific medical conditions associated with pregnancy.[4] According to Francisco, the Angelica and Sienna were the first compression garments designed specifically for post-partum recovery,[5] and the Maternity Compression Garments were the first such products that qualified for insurance reimbursement.[6]
6. BAB began selling its Maternity Compression Garments sometime between 2012 and 2013, directly through its own website as well as through various regional DME providers.[7] In 2017, BAB began to sell its products through 1 Natural Way ("1NW"), a regional DME subcontractor for Aeroflow.[8] BAB provided "[a]ll of [its] white papers, all of [its] marketing efforts, all of [its] years of understanding the products, the sizing, [and] how insurance correlates[ ]" to 1NW, recognizing the need to "shar[e] that process and product with someone that is in a position to put it into the market."[9]
7. BAB's work with 1NW "proved to be extremely successful on a regional basis,"[10] and Francisco determined that it was time to "connect[ ] with a DME provider with national reach[.]"[11] According to Francisco, he had "been attempting to break through with someone at Aeroflow,"[12] a nationwide DME provider and distributor offering multiple brands from multiple manufacturers,[13] when Evan Israel ("Israel"), Aeroflow's director of emerging markets, contacted him on 19 July 2018 (the "July 19 Call") after receiving Francisco's contact information from 1NW.[14]
8. During the July 19 Call, Francisco pitched BAB and its products to Israel, explaining that he had designed the Maternity Compression Garments to qualify for health insurance coverage as DME.[15] Francisco claims that he and Israel came to an oral agreement during the July 19 Call whereby BAB would provide Aeroflow with its products, marketing material, and insurance coding information and, in exchange, Aeroflow would market the Maternity Compression Garments through its national distribution channels, process the associated insurance claims, and pay BAB for
shipments received.[16] Francisco additionally claims that he and Israel, on behalf of Aeroflow, specifically agreed to maintain the confidentiality of BAB's comprehensive business plan.[17]
9. Later that day, Francisco attached BAB's new account paperwork, including BAB's insurance authorization form, to an e-mail to Israel and also provided Israel with a Dropbox link to various marketing materials for the Maternity Compression Garments.[18] Many of these materials were intended to be shared with healthcare providers and potential customers of BAB's products.[19]
10. Events moved rapidly from there. BAB completed its first drop shipment order for Aeroflow about a week later.[20] Over the next few weeks, BAB continued to provide Aeroflow with additional materials to support the sale of the Maternity
Compression Garments[21] and Francisco led an on-site training to educate Aeroflow employees on BAB's products at the end of August 2018.[22] But Aeroflow claims that, as early as September 2018, the demand for BAB's products began to outpace its ability to fulfill orders,[23] and Aeroflow began ordering the Maternity Compression Garments directly from Fansl, BAB's factory in China.[24] Aside from individual purchase orders for each shipment of BAB products, BAB and Aeroflow never entered into a written contract.[25]
11. During this same time, Motif, a wholly owned subsidiary of Aeroflow, was developing its own line of post-partum compression garments.[26] Motif ordered BAB's Maternity Compression Garments through Amazon,[27] located BAB's Chinese
manufacturer after searching public records,[28] and ultimately entered into a contract with the same manufacturer to produce its own post-partum compression garments.[29]
12. Aeroflow began to sell Motif's post-partum compression garments in January 2019[30] and stopped ordering BAB's products in March 2019.[31] Aeroflow claims that it sold both BAB's and Motif's post-partum compression garments without identifying the particular brand customers would receive until Aeroflow's inventory of BAB products was depleted in 2020 and thereafter sold only Motif's products.[32]
13. BAB initiated this action against Defendants on 23 August 2019[33] and subsequently filed its First Amended Complaint on 20 December 2019.[34]
14. Defendants moved to dismiss all claims on 9 January 2020 and, after a hearing on the motion, the Court dismissed the following claims: (i) constructive fraud; (ii) joint venture; (iii) fraud and fraudulent concealment, except to the extent those claims are based on the July 19 Call; (iv) common law unfair competition and violations of North Carolina's Unfair and Deceptive Trade Practices Act (the
"UDTPA"), N.C. G.S. § 75-1.1, except to the extent those claims are based on the July 19 Call; and (v) common law unfair competition and violations of the UDTPA and the federal Lanham Act, 15 U.S.C. § 1125(a), except to the extent those claims are based on BAB's allegations that Defendants sold BAB's products as if they were Defendants' own. See Vitaform, Inc. v. Aeroflow, Inc., 2020 NCBC LEXIS 132, at *37-38, *46-47 (N.C. Super. Ct. Nov. 4, 2020).
15. Defendants filed their Answer on 14 December 2020[35] and, after receiving leave of the Court, later filed their Amended Answer to First Amended Complaint and Counterclaims on 16 September 2021, asserting counterclaims for defamation per se, tortious interference with prospective economic advantage, and violations of the UDTPA.[36]
16. BAB filed its Answer to Counterclaims, Defenses, and Further Counterclaims on 2 November 2021.[37] After motions practice, BAB dismissed its further counterclaims without prejudice,[38] and Defendants dismissed their second and third counterclaims without prejudice shortly thereafter.[39]
17. Defendants filed the Motion on 7 February 2022, seeking summary judgment on BAB's remaining claims for (i) trade secret misappropriation; (ii) breach
of the duty of good faith and fair dealing; (iii) fraud and fraudulent concealment to the extent those claims are based on the July 19 Call, (iv) common law unfair competition and violations of the UDTPA and the Lanham Act to the extent those claims are based on BAB's allegations that Defendants sold BAB's products as if they were Defendants' own; (v) common law unfair competition and violations of UDTPA to the extent those claims are based on the July 19 Call; and (vi) unjust enrichment. After full briefing, the Court held a hearing on the Motion on 20 May 2022 (the "Hearing"), at which all parties were represented by counsel. The Motion is now ripe for resolution.
II.
LEGAL STANDARD
18. Under Rule 56(c), "[s]ummary judgment is appropriate 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that [the movant] is entitled to a judgment as a matter of law.'" Da Silva v. WakeMed, 375 N.C. 1, 10 (2020) (quoting N.C. R. Civ. P. 56(c)). "A genuine issue of material fact 'is one that can be maintained by substantial evidence.'" Curlee v. Johnson, 377 N.C. 97, 2021-NCSC-32, ¶ 11 (quoting Ussery v. Branch Banking & Tr. Co., 368 N.C. 325, 335 (2015)). "Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion and means more than a scintilla or a permissible inference[.]" DeWitt v. Eveready...
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