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Organ Recovery Systems, Inc v. Preservation Solutions

January 13, 2012

ORGAN RECOVERY SYSTEMS, INC., PLAINTIFF,
v.
PRESERVATION SOLUTIONS, INC., GARY L. SWANSON, BRIDGE TO LIFE, LTD., AND BTL SOLUTIONS, LLC, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:

MEMORANDUM OPINION AND ORDER

Organ Recovery Systems, Inc. (ORS) has sued Preservation Solutions, Inc., its president Gary L. Swanson, Bridge to Life, Ltd., and BTL Solutions, LLC, for breach of contract, breach of fiduciary duty, constructive trust, deceptive trade practices, false advertising and unfair competition under the Lanham Act, and civil conspiracy. Both Preservation Solutions and Swanson (collectively PSI) and Bridge to Life and BTL Solutions (collectively BTL) have moved to dismiss ORS's claims. For the reasons stated below, the Court grants each motion in part and denies each motion in part.

Background

The Court accepts the allegations in ORS's amended complaint as true for purposes of resolving the motions to dismiss. See Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009).

ORS provides medical devices and chemicals for kidney transplants. It sells two different solutions that are used to preserve kidneys. Only one, the KPS-1 perfusion solution, appears to be at issue in this suit. KPS-1 is used by hooking a perfusion machine to the kidney that has been removed from a donor. The machine pumps KPS-1 through the kidney to provide it with nutrients and oxygen. KPS-1 is based on a freely available recipe developed by the University of Wisconsin, so ORS attempted to differentiate its product by improving the solution's packaging and shelf life.

ORS entered into a contract with PSI to have PSI assist it in testing, manufacturing, and obtaining regulatory approval for KPS-1. The contract was divided into projects. Three projects involved KPS-1, and one of them was to research modifications to the packaging of KPS and improvements to its shelf life. The contract prohibited PSI from using or disclosing ORS's confidential information, a term the contract defined broadly.

In January 2002, ORS received FDA approval to sell KPS-1. Around the same time, it began working with PSI to modify the packaging of KPS-1 so that it could be stored at room temperature and would last longer. At the time, all kidney solutions had to be refrigerated during transportation and storage. Through its work with PSI, ORS improved KPS-1's packaging so that the solution could be stored at room temperature for one year.

PSI acquired ORS's confidential information through their work together. ORS claims that PSI used the information it acquired to market two kidney solutions of its own. Although anyone could make the solutions, ORS states that PSI used ORS's confidential information to make its own solutions, MaPerSol and CoStorSol, storable without refrigeration. ORS also contends that PSI used ORS's confidential information in the documents PSI submitted to the FDA seeking approval of its solutions.

ORS also claims that PSI gave ORS's confidential information to BTL. BTL sells two kidney solutions, Machine Perfusion Solution-Belzer UW and Belzer UW Cold Storage Solution, and PSI manufactures both solutions for BTL. Swanson, the president of PSI, owns an equity stake in BTL. BTL advertises that its solutions can be stored at room temperature and have long shelf lives, attributes that ORS claims BTL developed by using ORS's confidential information. In press releases and solicitations to customers, BTL has claimed that it was the first company to make room-temperature solutions and that it made room temperature storage possible. ORS contends, however, that it, not BTL, was the first company to develop room temperature kidney solutions through its research with PSI, and that BTL subsequently misappropriated confidential information from that research.

Discussion

Both PSI and BTL have moved to dismiss ORS's amended complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). "When analyzing the sufficiency of a complaint, [the Court] construe[s] it in the light most favorable to the nonmoving party, accept[s] well-pleaded facts as true, and draw[s] all inferences in the nonmoving party's favor." Fednav Int'l Ltd. v. Cont'l Ins. Co., 624 F.3d 834, 837 (7th Cir. 2010). ORS "has stated a claim only if it has alleged enough facts to render the claim facially plausible, not just conceivable." Id.

ORS's makes six claims against defendants: (1) PSI breached the contract between it and ORS; (2) PSI breached the duty of loyalty it owed ORS; (3) the Court should impose a constructive trust; (4) all defendants violated the Uniform Deceptive Trade Practices Act (UDTPA); (5) BTL violated the Lanham Act through false advertising and unfair competition; and (6) all defendants engaged in a civil conspiracy.

A. Breach of contract claim

ORS argues that PSI breached the contract between them when PSI used ORS's confidential information to apply for approval for its own kidney solutions and to manufacture solutions for BTL. PSI argues that ORS has not sufficiently pleaded the claim because it provides a "laundry list" allegation, that ORS's own exhibits rebut the claim, and that its CoStorSol solution is not covered by the contract.

1. Sufficiency of the allegations

PSI argues that ORS's breach of contract claim does not plead sufficient facts to show that ORS actually had confidential information or what confidential information PSI took. "[A] complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). PSI argues that the very broad statements in ORS's complaint are conclusory and do not provide fair notice of the claim to PSI. See Higgs v. Carver, 286 F.3d 437, 439 (7th Cir. 2002) (complaint must provide defendant notice so that it can file an answer).

ORS's complaint states that PSI had access to "Confidential Information related to the KPS-1 packaging design, know-how, data, formulas, product testing and studies, product drawings, specifications, schematics, samples, proto-types, regulatory and quality control files, vendor lists, and pricing information." Am. Compl. ¶ 35. Although this particular paragraph of the complaint is very broadly worded, when read as a whole the complaint more specifically identifies the confidential information that ORS believes PSI impermissibly acquired and used. ORS states that it worked with PSI to develop new packaging and an extended shelf life for KPS-1. Id. ¶ 30. It also says that as a result of the research KPS-1 packaging was completely redeveloped and that there was no more need to refrigerate KPS-1. Id. ¶ 32. ORS then claims that PSI took this information and developed packaging for itself and BTL, in particular, making use of results from tests and studies of the new packaging and self life. Id. ¶ 39, 45. ORS also states that PSI used specific confidential design documents, vendor lists, and product specifications from their joint project to improve KPS-1's packaging. Id. ¶ 46. ORS further alleges that PSI used all of this information to obtain FDA approval for its own products and manufacture solutions for BTL. Id. ¶¶ 43, 46, 51--52.

The allegations in the complaint are sufficient to make the breach of contract claim plausible and provide fair notice of the claim to PSI. ORS did not merely provide a list of all possible sources of confidential information. In addition, it described the particular project from which it alleges PSI took confidential information, specifically, the project to improve the packaging and shelf life of KPS-1. ORS also specified what that information was: test and study results as well as design documents and product specifications for the packaging. ORS does not need to be any more specific at this time. See Fire 'Em Up, Inc. v. Technocarb Equipment (2004) Ltd., 799 F. Supp. 2d 846, 850 (N.D. Ill. 2011) (stating that claims are dismissed for lack of specificity in the pleadings only in extreme cases and refusing to dismiss a complaint that claimed its trade secrets included customer lists, supplier lists, business partner lists, combinations of material used to create its product, financial data, marketing plans, and advertising strategies); Lincoln Park Sav. Bank v. Binetti, No. 10 CV 5083, 2011 WL 249461, at * 2 (N.D. Ill. Jan. 26, 2011) (refusing to dismiss complaint that alleged defendants had gotten access to various trade secret information contained in a loan origination system to which they had access).

PSI cites two cases in support of its argument that ORS's complaint should be dismissed. In Medafor, Inc. v. Starch Medical Inc., No. 09-CV-0441 PJS/FLN, 2009 WL 2163580 (D. Minn. July 16, 2009), the court dismissed part of a complaint that alleged that the trade secrets misappropriated were "business methodologies, formulas, devices, and compilations of information, including suppliers and customers" but provided no further description of what confidential information was taken. Id. at * 1. ORS, by contrast, has specified the research and product to which the alleged confidential information relates. In AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915 (N.D. Ill. 2001), the court refused to dismiss a complaint that referenced two specific technologies that were trade secrets arising from three research projects, even though the complaint also included general allegations. Id. at 920--21. Like the plaintiff in that case, ORS has identified a particular research project and the specific types of confidential information.

PSI also argues that ORS's complaint alleges too many facts on information and belief. It states that "[a]llegations based exclusively on information and belief are insufficient unless the facts are inaccessible to the pleader, and there is a reasonable basis to suspect that the facts are true." MaClean-Fogg Co. v. Edge Composites, L.L.C., No. 08 C 6367, 2009 WL 1010426, at *6 (N.D. Ill. Apr. 14, 2009). Unlike in MaClean-Fogg, however, ORS has stated reasonable grounds to suspect that the facts pleaded on information and belief are true. It developed a solution that could be stored at room temperature before anyone else had done so. Then PSI, which had worked with ORS to develop the solution, obtained approval for its own room temperature solutions. BTL, which used PSI to manufacture its solutions and which was partially owned by PSI's president, ...


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