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Boyd v. Tornier

January 20, 2009

GARY BOYD, BOYD MEDICAL INC., CHARLES WETHERILL, AND ADDISON MEDICAL, INC., PLAINTIFFS,
v.
TORNIER, INC., AND NEXA ORTHOPEDICS, INC., DEFENDANTS.



The opinion of the court was delivered by: Reagan, District Judge

ORDER AND MEMORANDUM

A. Background and Introduction

Currently before the Court is Tornier's motion to dismiss (Doc. 27). Plaintiffs Boyd Medical and Addison Medical are distributors,*fn1 which contracted with Tornier to sell Tornier's orthopedic medical devices in certain regions of the United States. In 2003, the parties entered into separate contracts through which Boyd Medical became Tornier's exclusive distributor in Illinois, Missouri, and Kansas, and Addison Medical became Tornier's exclusive distributor in Iowa.*fn2 In exchange, Boyd Medical and Addison Medical agreed not to distribute certain devices or products from Tornier's competitors. The agreement provided that it would last one year, and that either party could terminate the agreement at the end of the term by giving 30-days notice. If neither party terminated it, the agreement would automatically renew for successive one-year terms. However, Tornier also had the right to terminate the agreement upon written notice at the end of any quarter in which the distributor failed to reach the projected sales quota, as set by Tornier.

In fact, Tornier terminated its agreements with Boyd Medical and Addison Medical in May 2007, on the grounds that each had failed to meet its first quarter quota that year. In 2007, Tornier also purchased Nexa Orthopedics, which develops and manufactures orthopedic devices. Tornier opted to use Nexa's distributors after terminating its agreements with Boyd Medical and Addison Medical.

On October 31, 2007, Plaintiffs filed this lawsuit against Tornier alleging Breach of Contract (Counts 1 and 5), Fraud in the Inducement (Counts 2 and 6), and Negligent Misrepresentation (Counts 3 and 7). Plaintiffs also sued Nexa for Tortious Interference with a Business Relationship (Counts 4 and 8).*fn3

Tornier filed a partial motion to dismiss on January 11, 2008 (Doc. 27). Plaintiffs submitted a response on February 13, 2008 (Doc. 35), and Tornier submitted a reply on February 22, 2008 (Doc. 41). Having fully reviewed the parties' filings, the Court hereby GRANTS IN PART AND DENIES IN PART Tornier's motion to dismiss (Doc. 27).

B. Analysis

1. Standards Governing a Motion to Dismiss

Dismissal is warranted under Rule 12(b)(6) of the FEDERAL RULES OF CIVIL PROCEDURE if the complaint fails to set forth "enough facts to state a claim to relief that is plausible on its face."Bell Atlantic Corp. v. Twombly, --U.S.--, 127 S.Ct. 1955, 1965 (2007); EEOC v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007).

Stated another way, the question on a Rule 12(b)(6) motion is whether the complaint gives the defendant fair notice of what the suit is about and the grounds on which the suit rests. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002); Mosely v. Board of Education of City of Chicago, 434 F.3d 527, 533 (7th Cir. 2006). Additionally, although federal complaints need only plead claims, not facts, the pleading regime created by Bell Atlantic requires the complaint to allege a plausible theory of liability against the defendant. Sheridan v. Marathon Petroleum Co., LLC, 530 F.3d 590, 596 (7th Cir. 2008); see also Limestone Dev. Corp. v. Village of Lemont, Ill.,520 F.3d 797, 803-04 (7th Cir. 2008).

In Tamayo v. Blagojevich, the Seventh Circuit emphasized that even though Bell Atlantic "retooled federal pleading standards" and "retired the oft-quoted Conley formulation," notice pleading is still all that is required. 526 F.3d 1074, 1083 (7th Cir. 2008). "A plaintiff still must provide only enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests and, through his allegations, show that it is plausible, rather than merely speculative, that he is entitled to relief." Id.; Accord Pugh v. Tribune Co., 521 F.3d 686, 699 (7th Cir. 2008) ("surviving a Rule 12(b)(6) motion requires more than labels and conclusions"; the allegations "must be enough to raise a right to relief above the speculative level").

In making this assessment, the District Court accepts as true all well-pled factual allegations and draws all reasonable inferences in Plaintiffs' favor. Tricontinental Industries, Inc., Ltd. v. PriceWaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007), cert. denied, 128 S.Ct. 357 (2007); Marshall v. Knight, 445 F.3d 965, 969 (7th Cir. 2006); Corcoran v. Chicago Park District, 875 F.2d 609, 611 (7th Cir. 1989).

2. Scope of the Motion

Generally, the Court may only consider the Plaintiffs' complaint when ruling on a motion under Rule 12(b)(6), and matters outside the pleadings, if not excluded, may convert the motion to one for summary judgment under Rule 56. FED.R.CIV.PRO. 12(d). However, Rule 10(c) provides that "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes," and the law of this Circuit provides that Rule 10(c) "includes a certain limited class of attachments to Rule 12(b)(6) motions." Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 661 (7th Cir. 2002). The Seventh Circuit has explained: "[D]ocuments attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim. Such documents may be considered by a district court in ruling on the motion to dismiss." Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th Cir. 1994). This exception is "aimed at cases interpreting, for example, a contract." Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998). "The court is not bound to accept the pleader's allegations as to the effect of the exhibit, but can independently examine the document and form its own conclusions as to the proper construction and meaning to be given the material." 5 Wright & Miller, Federal Practice & Procedure: Civil 2d, § 1327 at 766 (1990).

Id.

Tornier attached the Agency Agreements underlying the Plaintiffs' breach of contract claims to its motion to dismiss (Docs. 28-2 & 28-3). The Court properly considers these contracts in resolving the instant motion to dismiss, as the agreements are specifically referred to throughout the complaint and are central to Plaintiffs' claims. Moreover, the Court notes that Plaintiffs make no objection to the authenticity of the contracts, and their contents are not in dispute.

3. Plaintiffs' Breach of Contract Claims

a. Governing Law

As a federal court exercising diversity jurisdiction, this Court applies federal law in resolving procedural and evidentiary issues, and Illinois law with respect to substantive law. Bevolo v. Carter, 447 F.3d 979, 982 (7th Cir. 2006) (citing Colip v. Clare, 26 F.3d 712, 714 (7th Cir. 1994)). As such, this Court applies Illinois's choice-of-law rules to determine the applicable substantive law. See Hinc v. Lime-O-Sol Company, 382 F.3d 716, 719 (7th Cir. 2004); Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184 (7th Cir. 1996). Illinois follows theRESTATEMENT (SECOND) OF CONFLICT OF LAWS in making such decisions. Midwest Grain Products of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir. 2000).

For contracts claims, the Restatement and Illinois law respect a contract's choice-oflaw clause as long as the contract is valid. Kohler, 80 F.3d at 1185. In this case, the parties' contracts include choice-of-law provisions, which provides that the contracts "shall be construed and determined in accordance with the laws of the State of Texas." Doc. 28-2, ¶ 10.12; Doc. 28-3, ¶ 10.12. As the parties do not contest the contracts' validity, the Court applies Texas law to Plaintiffs' breach of contract claims.

In Counts 1 and 5, Plaintiffs claim that Tornier breached its agreements because it (1) breached its promise that Plaintiffs would be the exclusive distributors of Tornier products in their assigned regions, (2) breached its duty of good faith and fair dealing by establishing 2007 quotas that were unreasonable and unattainable, and (3) failed to pay commissions and compensation for returned samples.*fn4 Plaintiffs seek a variety of remedies including, but not limited to, lost profits, lost wages, and punitive damages.

Tornier asks this Court to dismiss the breach of contract claims based on the exclusivity clause, and the duty of good faith and fair dealing. Additionally, Tornier argues that certain remedies that Plaintiffs seek are unavailable under Texas law. Tornier's motion does not challenge Plaintiffs' claim that Tornier failed to properly pay commissions and reimburse them for returned samples.

It is well-settled under Texas law that the elements necessary to prove a claim for breach of contract are (1) the existence of a valid contract, (2) plaintiff's performance or tendered performance of the contract, (3) defendant's breach of the contract, and (4) plaintiff's damages. Bank of Texas v. VR Elec., Inc., -- S.W.3d --, 2008 4075594, *4 (Tex. App. Sept. 4, 2008).

b. Breach of the Exclusivity Provisions

Tornier argues that the Agency Agreements and Plaintiffs' complaint contradict the claim that Tornier breached the exclusivity provisions in the agreements. Typically, where a supplier agrees that a distributor has exclusive rights to distribute a product, the promise of exclusivity is breached when, in the course of the contract, the supplier permits a second entity to distribute the product. Here, Plaintiffs appear to claim that the exclusivity provisions were breached by the simple fact of Tornier's termination of their Agency Agreements, which is really nothing more than a generalized breach of contract claim.

Rather than arguing that Tornier directly breached the exclusivity provision, it actually appears that Plaintiffs attempt to argue that Tornier's wrongful termination of the contract deprived them of the benefit of their bargain, which included the valuable right to exclusively distribute Tornier's products in their assigned regions. This appears to be the case, especially in light of the complete absence of any specific argument in Plaintiffs' response that it has pled facts sufficient to state a plausible claim for relief that Tornier breached the exclusivity provisions by any manner other than wrongful termination. Instead, Plaintiffs argue that the facts alleged in complaint are sufficient to support a general breach of contract claim upon a variety of separate theories unrelated to the exclusivity provision (see supra fn. 4).

If Plaintiffs do intend to seek recovery for the direct breach of the exclusivity provisions, the claim fails to state a claim under the allegations contained in the complaint. Paragraph 1.1 of each Agency Agreement (Docs. 28-2, 28-3, ΒΆ 1.1) provides Company hereby appoints Agent as exclusive representative of the Products . . . in the Territory and agrees, for the term and subject to the ...


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