Hess et al v. Biomet, Inc. et al
OPINION AND ORDER granting in part and denying in part 18 Motion to Dismiss. Signed by Judge Rudy Lozano on 2/16/17. (ksp)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
CHARLES HESS, MARTY HIGGINS,
ROBERT “GLEN” MCCORMICK, RONALD
PAPA, FRANK SHERA and AL
BIOMET, INC. and ZIMMER BIOMET
OPINION AND ORDER
This matter is before the Court on Defendant Biomet, Inc.,
and Zimmer Biomet Holdings, Inc.’s Motion to Dismiss (DE #18),
Defendants’ motion to dismiss is GRANTED IN PART and DENIED IN
Counts II, III, V, and VI are DISMISSED.
Counts I and IV
Plaintiffs Charles Hess, Marty Higgins, Robert McCormick,
Ronald Papa, Frank Shera and Al Tornquist (together, "Plaintiffs")
were each successful sales representatives with the medical device
company Zimmer Holdings Inc. ("Zimmer") by 1980.
(DE #1, ¶14.)
Defendant Biomet, Inc. ("Biomet") is a medical device company that
competed with Zimmer.
Between 1980 and 1983, Biomet
allegedly enticed Plaintiffs to leave Zimmer and join Biomet by
offering them agreements that included a retirement-income program
in the form of lifetime commissions on all products sold in their
Upon Plaintiffs’ retirements from
Biomet, Biomet paid them commissions on products sold in their
discovered that those commission payments were based on some, but
not all, Biomet products sold in those territories.
In 2015, Biomet and Zimmer merged, and became Defendant Zimmer
Biomet Holdings, Inc. ("Zimmer Biomet").
merger, Zimmer Biomet has allegedly repudiated its obligations to
Plaintiffs under the agreements.
The Complaint alleges six causes of action against Biomet and
Zimmer Biomet (together, “Defendants”):
(1) breach of contract
for failing to pay Plaintiffs commissions on all Biomet products
sold in their former territories; (2) breach of contract and
implied covenant of good faith and fair dealing for spinning-off,
products; (3) breach of contract and implied covenant of good faith
Plaintiffs commissions on all products sold by Biomet or Zimmer
Biomet in their former territories; (4) violations of Indiana Code
sections 34-24-3-1 and 35-43-5-3 for knowingly or intentionally
making false or misleading commission statements with the intent
to underpay Plaintiffs; (5) theories of de facto merger, mere
continuation, alter ego, and piercing the corporate veil; and (6)
Defendants move to dismiss the Complaint in
Plaintiffs are former sales representatives of Zimmer.
#1, ¶14.) Between 1980 and 1983, Biomet offered each of Plaintiffs
Agreements") to leave Zimmer and work for Biomet.
Distributorship Agreements included a promise of a retirementincome program in the form of lifetime commissions on all products
sold in Plaintiffs’ sales territories.
musculoskeletal healthcare industry.
(See id., ¶15.)
1996 and 2005, Plaintiffs retired from Biomet.
retirement, Plaintiffs each signed agreements terminating their
distributorships and acknowledging the survival and continuation
Distributorship Agreements, and its applicability to Biomet’s
successors and assigns ("Termination Agreements").
Distributorship Agreements and Termination Agreements (together,
"Agreements") allegedly entitle Plaintiffs to be paid a retirement
commission on all Biomet products sold in their former territories.
(Id., ¶¶17, 37.)1
retirement commissions, and sent them semi-monthly payments along
with statements purporting to show the commissions owed.
These statements originally set forth a single
dollar amount showing the total commission payment; years later,
Plaintiffs allege that they did not know, and could not tell from
these statements, that the commission payments failed to pay them
for all Biomet product sales from their former territories.
¶¶43, 44.) Plaintiffs relied on the accuracy and comprehensiveness
obligation under the Agreements by properly calculating and paying
their retirement commissions.
(Id., ¶¶ 17, 40.)
commissions on its joint reconstructive products, rather than all
of its products, and that Biomet allegedly had been concealing the
did not attach copies of the Agreements to the
Complaint, citing the Agreements’ confidentiality provisions. (DE
#1, ¶16 n.1.)
After Defendants filed the instant motion to
dismiss, the parties stipulated to the public filing of the
(DE #22 at 11 n.2; DE #22-12.)
copies of the Agreements in opposition to the motion.
##22-1 - 22-11.)
(Id., ¶¶18, 39-41.)
On June 24, 2015, Biomet and Zimmer merged, and became Zimmer
Zimmer Biomet holds itself out to the public
as the combination of Zimmer and Biomet, and is controlled and
directed by a management team drawn from senior executives from
Zimmer and Biomet.
(Id., ¶¶22, 58-78.)
Post-merger, Biomet and
Zimmer Biomet allegedly spun off, re-branded, or discontinued
Biomet products in favor of substitute Zimmer or Zimmer Biomet
commissions are paid.
Plaintiffs believe they have
only been paid commissions on a subset of Biomet’s total product
line, and no commissions on the Zimmer or Zimmer Biomet product
Motion to Dismiss Standard
In evaluating a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), the Court must “accept all facts alleged in
the complaint as true and draw all reasonable inferences in the
light most favorable to the plaintiff.” Parish v. City of Elkhart,
614 F.3d 677, 679 (7th Cir. 2010) (citation omitted).
complaint is not required to contain detailed factual allegations,
the plaintiff must allege facts that “state a claim to relief that
is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678,
129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009).
obligation to provide the ‘grounds’ of his ‘entitle[ment] to
relief’ requires more than labels and conclusions.”
Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed.
2d 929 (2007) (citations omitted).
“Factual allegations must be
enough to raise a right to relief above the speculative level . .
. on the assumption that all the allegations in the complaint are
true (even if doubtful in fact).”
Id. (citations omitted).
“[E]ven with the heightened pleading requirements of Iqbal and
Twombly, the pleading requirements to survive a challenge to a
motion to dismiss remain low.”
Diedrich v. Ocwen Loan Servicing,
LLC, 839 F.3d 583, 589 (7th Cir. 2016).
Count I – Breach of Contract Claim
Count I alleges that Defendants breached the Agreements by
“fail[ing] to pay [Plaintiffs] a commission on all Biomet products
sold in their respective territories as required by the terms of
the retirement-income program.”
(DE #1, ¶96.)
To recover for
breach of contract under Indiana law, a plaintiff must prove that
“(1) a contract existed, (2) the defendant breached the contract,
Duncan v. Greater Brownsburg Chamber of
Commerce, Inc., 967 N.E.2d 55, 57 (Ind. Ct. App. 2012) (citation
Count I alleges that: (1) Plaintiffs and Defendants
were parties to the Agreements, which provided for payment of
lifetime commissions on all Biomet products sold in the relevant
territories (id., ¶89-92); (2) Defendants violated the Agreements
by failing to pay Plaintiffs commissions on all Biomet products
sold in those territories (id., ¶96); and (3) as a result of those
violations, Plaintiffs suffered damages in the amount of unpaid
commissions (id., ¶¶101-105).
Accepting the facts as alleged in
the Complaint as true, and drawing all reasonable inferences in
Plaintiffs’ favor, Count I sufficiently alleges facts stating a
plausible breach of contract claim.
Rather, they contend that Count I must be dismissed
because Plaintiffs allegedly conceded that Biomet had honored its
obligations under the Agreements in a letter dated July 20, 2015,
from Plaintiffs’ counsel to Zimmer Biomet (“July 2015 Letter”).
The July 2015 Letter was not attached as an exhibit to the
Nonetheless, Defendants maintain that the Court may
consider the July 2015 Letter because the Complaint references and
quotes from the letter.
Defendants filed a copy of the July 2015
Letter as an exhibit to their motion to dismiss.
general, a court may only consider the plaintiff’s complaint when
ruling on a Rule 12(b)(6) motion.”
Burke v. 401 N. Wabash Venture,
However, “documents 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.”
Id. (citations omitted).
The court may consider such documents in ruling on a motion to
dismiss without converting the motion into a motion for summary
While the Complaint refers to and quotes from the July 2015
Letter (DE #1, ¶¶52-53), it does not appear to be central to
The Complaint alleges that, prior to the
merger, Biomet proposed buyout offers to Plaintiffs in return for
rejected these offers, and hired counsel to negotiate a compromise
Plaintiffs’ counsel sent the July
2015 Letter to Zimmer Biomet, noting Zimmer Biomet’s continuing
Agreements, and proposed potential resolutions to the parties’
In response, Zimmer Biomet declined
further buyout negotiations and maintained that the Agreements do
not extend to non-Biomet products.
references the July 2015 Letter and other correspondence between
the parties to “establish that a current, justiciable dispute
exists between [Plaintiffs], Biomet, and Zimmer Biomet regarding
their respective rights and obligations under the Agreements.”
Even if the July 2015 Letter is central to Plaintiffs’ claims,
Plaintiffs argue that the July 2015 Letter, which is marked “Offer
of Compromise and Settlement pursuant to Rule 408 of the Rules of
Evidence,” is inadmissible because it was prepared as part of
settlement discussions with Defendants.
Rule 408 provides that
negotiations about the claim” “is not admissible – on behalf of
any party – either to prove or disprove the validity or amount of
a disputed claim.”
Fed. R. Evid. 408; see United States v. Dish
Network, L.L.C., No. 09-3073, 2015 WL 9164665, at *2 (C.D. Ill.
Dec. 16, 2015) (“Rule 408 promotes settlement by encouraging frank
discussions during settlements negotiations without fear that the
statements would be used against the party later during the
Defendants contend that Rule 408 does not apply
because the July 2015 Letter was merely a response to Biomet’s
proposed buyout of future obligations under the Agreements.
maintain that no actionable dispute existed when the July 2015
Letter was written and no offer of compromise was made. Defendants
also insist that Plaintiffs “opened the door” for the Court’s
consideration of the July 2015 Letter by pleading its existence
addressing motions for summary judgment to assert that “[w]hen a
inadmissible, that party cannot complain on appeal about the
admission of that evidence.
And when a party puts evidence at
issue, that party must accept the consequence[s] of opening the
door to that evidence.”
United States v. Dish Network, L.L.C., 75
F. Supp. 3d 942, 971 (C.D. Ill. 2014), vacated in part on other
grounds on recons., 80 F. Supp. 3d 917 (C.D. Ill. 2015) (quoting
Estate of Escobedo v. Martin, 702 F.3d 388, 400 (7th Cir. 2012)
(citations omitted)) (rejecting argument that settlement material
was inadmissible under Rule 408 where arguing party had cited the
“Rule 408 is an evidentiary rule, which is best addressed in
context of admissibility of evidence at trial.”
PTR, Inc. v.
Forsythe Racing, Inc., No. 08 C 5517, 2009 WL 1606970, at *4 (N.D.
Ill. June 9, 2009) (denying motion to strike complaint allegations
based on Rule 408 as premature, and allowing defendants to file
motion in limine if case is presented to jury); see Brandy v. Maxim
Healthcare Servs., Inc., No. 2:12 CV 192, 2012 WL 5268365, at *2
(N.D. Ind. Oct. 23, 2012) (denying motion to strike pleading based
on Rule 408 because “it is too early to determine what evidence
would be used and whether it would be barred by Rule 408”).
Court finds that whether Rule 408 applies to the July 2015 Letter
is premature at this stage of the litigation.
See Abercrombie &
Fitch Co. v. Fed. Ins. Co., No. 2:06-CV-831, 2008 WL 656029, at *5
(S.D. Ohio Mar. 11, 2008) (denying motion to dismiss, explaining
determined at the pleading stage of this case”).
that Rule 408 precludes Defendants from offering evidence to
disprove Count I is inappropriate for the Court to consider in the
context of this Rule 12(b)(6) motion.
“Whether this evidence is
admissible as relevant, probative and permissible, is a decision
that can only be made in a legal and factual context, which cannot
Defendants’ motion to dismiss Count I is DENIED.
Counts II and III
Defendants move to dismiss Counts II and III.
alleges that Defendants “breached the Agreements and the implied
covenant of good faith and fair dealing by spinning off, rebranding, substituting and otherwise discontinuing Biomet-branded
products, in favor of substantially similar, if not functionally
identical, product lines bearing a Zimmer and/or Zimmer Biomet
brand, and by failing to pay [Plaintiffs] a commission on such
Zimmer or Zimmer Biomet branded products.”
(DE #1, ¶113.)
III alleges that Zimmer Biomet “breached the Agreements and the
implied covenant of good faith and fair dealing by failing to pay
[Plaintiffs] commissions on all products sold by Biomet or Zimmer
Biomet in [Plaintiffs’] former territories, regardless of whether
such products are branded as Biomet, Zimmer, or Zimmer Biomet
Even if the Court were to consider the July 2015 Letter, the
Complaint includes allegations which, when considered in the light
most favorable to Plaintiffs, reasonably infer that the July 2015
Letter was written before Plaintiffs discovered that Biomet had
been underpaying Plaintiffs in violation of the Agreements. (See
DE #1, ¶¶39-41 (alleging Plaintiffs only recently discovered
Biomet’s failure to pay commissions on all of its products as a
result of discussions with Biomet’s counsel in 2015).)
Defendants argue that Counts II and III
should be dismissed because they do not plead valid claims for
breach of duty of good faith under Indiana law. Plaintiffs respond
that Counts II and III allege a duty of good faith as a subset of
their breach of contract claims, not as separate causes of action.
Defendants maintain that Counts II and III do not state breach
of contract claims because they do not allege that Defendants
failed to perform any obligation under the Agreements, but rather,
rely on an implied covenant of good faith and fair dealing as the
Stapleton Ventures, Inc., 373 F. Supp. 2d 829, 847 (S.D. Ind. 2005)
(dismissing breach of contract claim where plaintiffs did not
allege breach of contractual term, but rather, “something akin to
breach of the duty to act in good faith and in accordance with
reasonable standards of fair dealing”); Perfect Flowers, Inc. v.
Teleflora LLC, No. 1:10-CV-1031, 2012 WL 2994636, at *3 (S.D. Ind.
July 20, 2012) (dismissing breach of contract claim, rejecting
plaintiff’s contention that “although no specific provision of the
contract was breached, Defendant breached its obligation of good
faith and fair dealing by exceeding the scope of the contract”).
Count II alleges that Defendants spun off, re-branded, substituted
and otherwise discontinued Biomet products.
But the Complaint
allegedly breached by doing so.
Thus, Count II does not state a
breach of contract claim.
Count III alleges that Zimmer Biomet failed to pay Plaintiffs
commissions on all products sold by Biomet or Zimmer Biomet,
regardless of whether they were branded as Biomet, Zimmer, or
Defendants argue that this claim does not plead
that the parties intended the retirement commissions on Biomet
products to include Zimmer and Zimmer Biomet products. See Fellows
v. Bd. of Trustees of Welborn Clinic, 63 F. Supp. 2d 942, 944 (S.D.
Ind. 1998) (“The primary and overriding purpose when interpreting
a written contract is to give effect to the parties’ mutual intent
at the time the contract is written.”).
In response, Plaintiffs
commissions for products sold by Zimmer Biomet: (1) the Termination
Agreements expressly provide that the retirement income program
“would be binding on Biomet, and its respective successors and
assigns” (DE #1, ¶35); (2) Zimmer and Biomet merged, resulting in
a single combined company, and under Indiana law, Zimmer Biomet
succeeds to all liabilities of Biomet; and (3) Zimmer Biomet’s
liability is based on the doctrines of de facto merger, mere
continuation, alter ego, and piercing the corporate veil.
These Complaint allegations, coupled with Count
III’s allegation that the Agreements “provide for payment of a
lifetime commission on all Biomet products sold in the relevant
territories” (id., ¶¶120-21), state a breach of contract claim
against Zimmer Biomet for its alleged failure to pay Plaintiffs
commissions on all Biomet products sold in the relevant territories
after the merger.
See Ind. Code § 23-1-40-6(a)(3) (“When a merger
takes effect . . . the surviving corporation has all liabilities
of each corporation party to the merger”).
Plaintiffs insist that whether the parties intended for the
Agreements to apply to Zimmer and Zimmer Biomet products is a factintensive issue that is inappropriate for resolution under a Rule
They rely on Zimmer US Inc. v. Mire, 188 F. Supp.
3d 843 (N.D. Ind. 2016), in which the court denied a motion to
dismiss a breach of contract claim where the word “assigned” was
not defined in the agreement, and the resolution of “whether a
specific territory was ‘assigned’ to Mire . . . would involve an
assessment of evidence . . . to determine the parties’ intent when
they signed the agreement.”
Id. at 851.
Here, the Complaint does
not allege any ambiguous language in the Agreements.
alleges that the Agreements provided for commission payments “on
all Biomet products sold in the relevant territories.”
Distributorship Agreements “provide a retirement-income program
that would pay a lifetime commission on all Biomet products sold
in the relevant territory,” and that “the program would be paid on
a percentage of ‘net sales’” that “appl[ies] to Biomet’s entire
product line without limitations of any type.”
(Id., ¶¶34, 36
[Plaintiffs] to be paid a commission based upon the sales of all
Because the Complaint does not allege a contractual
obligation for Zimmer Biomet to pay Plaintiffs a commission on any
products other than Biomet products, Count III only states a breach
of contract claim relating to Biomet products.
Plaintiffs contend that even if they had pleaded a breach of
an implied covenant of good faith and fair dealing as a separate
cause of action, dismissal of Counts II and III is not warranted.
“Indiana law does not impose a generalized duty of good faith and
fair dealing on every contract; the recognition of an implied
Old Nat. Bank v. Kelly, 31 N.E.3d 522, 531
(Ind. Ct. App. 2015) (citing Allison v. Union Hosp., Inc., 883
N.E.2d 113, 123 (Ind. Ct. App. 2008)).
The Court of Appeals of
Indiana has noted that there is “no absolute restriction” of a
duty of good faith and fair dealing to employment and insurance
insurance companies and banks, as each—from a superior vantage
point—offer customers contracts of adhesion.”
Kelly, 31 N.E.3d at
Plaintiffs rely on Kelly to argue that Defendants had a
“superior vantage point” because they have exclusive control of
their product sales and the calculation and reporting of the
retirement commissions for those sales.
But the Complaint does
not allege that Defendants had a superior vantage point when the
parties entered into the Agreements, or that the parties entered
into any contracts of adhesion.3
Rather, the Complaint alleges
that Plaintiffs were “highly successful sales representative[s],”
and that “Biomet struggled to sell medical devices” and “needed an
representatives to take a risk on a fledgling firm like Biomet.”
(DE# 1, ¶¶ 14, 23, 25.)
As such, this argument is unpersuasive.
Plaintiffs also argue that if a contract is ambiguous, the
courts will impose a duty of good faith and fair dealing.
Allison, 883 N.E.2d at 123.
“A contract is ambiguous if a
reasonable person would find the contract subject to more than one
Citimortgage, Inc. v. Barabas, 975 N.E.2d 805,
813 (Ind. 2012) (citation omitted).
Plaintiffs assert that the
But “the fact that the parties disagree over the
meaning of the contract does not, in and of itself, establish an
Adhesion contracts are “standardized contracts, which, imposed
and drafted by a party of superior bargaining strength, relegate
subscribing parties only the opportunity to adhere to the contract
or reject it.” John M. Abbott, LLC v. Lake City Bank, 14 N.E.3d
53, 58 n.2 (Ind. Ct. App. 2014).
Partners LLC, 997 N.E.2d 1093, 1097 (Ind. Ct. App. 2013) (citation
Plaintiffs point to no allegations in the Complaint
indicating that the Agreements are ambiguous, and the Court has
Courts applying Indiana law have refused to find an
independent cause of action for breach of a duty of good faith and
fair dealing in similar circumstances:
Based on Indiana’s reluctance to extend this duty to
unambiguous non-insurance and non-employment contracts,
the general limitation to employment and insurance
contracts, and the lack of allegations in the pleadings
that the contracts were ambiguous, the Court determines
that claims for breach of covenant and implied covenant
of good faith and fair dealing are not viable under the
unambiguous  agreements that were freely entered into
by the parties.
7E Fit Spa Licensing Grp. LLC v. 7EFS of Highlands Ranch, LLC, No.
115CV01109, 2016 WL 4761562, at *10 (S.D. Ind. Sept. 13, 2016)
(dismissing such claims); see Hamilton v. Wells Fargo Bank, N.A.,
No. 09-04152 CW, 2010 WL 1460253, at *3 (N.D. Cal. Apr. 12, 2010)
(dismissing breach of covenant of good faith and fair dealing claim
where plaintiff had not shown contract was ambiguous or pertained
to employment or insurance matters) (applying Indiana law).
if the Agreements are found to be ambiguous, the duty of good faith
and fair dealing would only help the Court interpret the contracts,
rather than support an independent cause of action.
See Ball v.
Versar, Inc., No. IP01-0531, 2002 WL 33964449, at *7 (S.D. Ind.
Sept. 6, 2002) (dismissing breach of duty of good faith and fair
dealing claim, noting that “even if a contractual ambiguity is
identified later in the case, so that the court might turn to an
implied duty of good faith and fair dealing to help interpret the
contract, that still would not support an independent tort claim”);
ArcAngelo, Inc. v. Directbuy, Inc., No. 3:13CV104, 2013 WL 6095678,
at *4 & n.1 (N.D. Ind. Nov. 20, 2013) (similar) (citing First
Federal Savings Bank of Indiana v. Key Markets, Inc., 559 N.E.2d
600 (Ind. 1990)).
For these reasons, neither Count II nor Count
III state a claim for breach of an implied covenant of good faith
and fair dealing.
For the reasons provided above, Count II does not state a
claim for breach of contract, and therefore is DISMISSED.
III does not state a breach of contract claim for failing to pay
commissions on sales of Zimmer products or Zimmer Biomet products.
While Count III does state a breach of contract claim against
Zimmer Biomet for failing to pay commissions on sales of all Biomet
products, Count I alleges the same claim.
(See DE #1, ¶¶95-96
(alleging breach of contract claim against Zimmer Biomet and Biomet
for failing to pay Plaintiffs commissions on all Biomet products
sold in their respective territories).)
Because the only claim
remaining in Count III is duplicative of Count I, the Court in its
discretion DISMISSES Count III in its entirety.4
In a footnote, Defendants assert that Counts II and III should be
dismissed with respect to Plaintiff Frank Shera (“Shera”) because
his Termination Agreement defines “Products” as “orthopedic
products offered for sale by Biomet under the Biomet trademark,”
Count IV asserts a deception claim against Defendants under
the Indiana Crime Victims Relief Act (“CVRA”).
intentionally makes a false or misleading written statement with
intent to obtain property” commits criminal deception.
Under the CVRA, one who suffers a pecuniary
loss due to a violation of Section 35-43, including criminal
deception, may recover treble damages, costs and attorney’s fees.
See Ind. Code § 34-24-3-1(1)-(3).
preponderance of the evidence.
To recover under the CVRA, a
See Larson v. Karagan, 979 N.E.2d
655, 661 (Ind. Ct. App. 2012); French-Tex Cleaners, Inc. v. Cafaro
Co., 893 N.E.2d 1156, 1166 (Ind. Ct. App. 2008).
Defendants argue that Count IV must be dismissed because the
alleged deception is really a breach of contract claim.
under the [CVRA] is not based on a breach of contract, but must be
and states that “Products sold by Biomet’s subsidiary corporations
are not included within the meaning of ‘Products’ used herein.”
(DE #19 at 13 n.5.) Plaintiffs respond that these provisions were
taken out of context from Shera’s Termination Agreement, and do
not apply to the commissions at issue, but rather, to a particular
customer account with which Shera was to be involved after his
Defendants do not address Plaintiffs’ response in
their reply brief. Their silence leads the Court to conclude that
Defendants concede this argument. See Bonte v. U.S. Bank, N.A.,
624 F.3d 461, 466 (7th Cir. 2010) (“silence leaves us to conclude”
a concession; “[f]ailure to respond to an argument . . . results
predicated on an independent tort.”
State Grp. Indus. (USA) Ltd.
v. Murphy & Assocs. Indus. Servs., Inc., 878 N.E.2d 475, 480 (Ind.
Ct. App. 2007); see JPMCC 2006-CIBC14 Eads Parkway, LLC v. DBL
Axel, LLC, 977 N.E.2d 354, 364 (Ind. Ct. App. 2012) (“Where the
source of a party’s duty to another arises from a contract, tort
law should not interfere.”).
Defendants maintain that because
Count IV rests on allegations that they broke a promise to pay
Plaintiffs commissions on all Biomet products sold in Plaintiffs’
former territories, it merely repackages Plaintiffs’ breach of
contract claims as a deception claim.
See Dunlap v. Switchboard
Apparatus, Inc., No. 1:12-CV-0020-TWP-DKL, 2012 WL 1712554, at *10
(S.D. Ind. May 15, 2012) (dismissing CVRA conversion claim that
was “little more than a repackaged version of the breach of
contract claim, presumably brought to up the ante by raising the
specter of treble damages”) (internal quotations and citation
Count IV alleges that:
Biomet has systemically underpaid [Plaintiffs] for many
years . . . and has concealed these underpayments through
false or misleading commission statements.
[Plaintiffs] and have continued to conceal these
underpayments through false or misleading commission
statements. . . .
These statements were designed to
actively conceal these underpayments and mislead
[Plaintiffs] by paying them on only a subset of Biomet
products, despite a plain contractual obligation to pay
[Plaintiffs] on all Biomet products.
(DE #1, ¶128 (emphasis added).)
Thus, the deception alleged in
Plaintiffs commissions in breach of the Agreements.
prohibited by the CVRA that is separate from their breach of the
According to Plaintiffs, their breach of contract
claim concerns Defendants’ alleged failure to pay commissions owed
under the Agreements, while Count IV concerns Defendants’ alleged
“contain[ing] no substantive information beyond the total amount
of commission to be paid” (DE #1, ¶42), that Plaintiffs “did not
know, and could not tell from the statements . . . that this
commission payment failed to pay [Plaintiffs] for all Biomet
product sales from their former territories” (id., ¶43), and that
Defendants designed the statements “to actively conceal these
underpayments and mislead [Plaintiffs] by paying them on only a
subset of Biomet products,” and gained illicit proceeds by doing
so (id., ¶128).
Plaintiffs maintain that Defendants’ alleged
issuing false and misleading commission statements in order to
recovery under the CVRA notwithstanding that the CVRA claim was
related to an alleged breach of contract.
See, e.g., Longhi v.
Mazzoni, 914 N.E.2d 834, 846 (Ind. Ct. App. 2009)(affirming treble
damages award for deception where defendant failed to return
earnest deposit in breach of a contract to build a house); Larson,
commissions); State Grp. Indus., 878 N.E.2d at 478 (remanding to
determine damages under CVRA where trial court found breach of
contract and knowing submission of false or misleading invoices).
While none of these opinions address the issue of whether the CVRA
claim was merely a repackaged version of a breach of contract
claim, they demonstrate that Indiana courts are not averse to
allowing recovery for CRVA claims that relate to a breach of
Defendants argue that unlike Plaintiffs’ cited case
law, Count IV is based on the parties’ disagreement over the
contract interpretation, i.e., the scope of commissions to which
Plaintiffs are entitled under the Agreements.
But Defendants do
not cite, and the Court was unable to find, case law granting a
motion to dismiss where the CVRA claim was based on the parties’
disagreement over the interpretation of a contract.
Defendants maintain that Plaintiffs seek “to elevate the
disagreement over contract interpretation into actionable conduct
solely because Defendants sent commissions statements that reflect
the amount Defendants believe is due to Plaintiffs under the
(DE #29 at 9.)
They insist that “the Indiana
legislature did not intend to criminalize bona fide contract
French-Tex Cleaners, 893 N.E.2d at 1168.
they rely upon cases that applied the summary judgment standard of
review and considered evidence in dismissing tort claims.
at 1167-68 (affirming summary judgment on conversion claim where
there was “not a material issue of fact” regarding whether alleged
tortfeasor had requisite mens rea to support conversion claim,
rather, he “acted in accordance with a reasonable interpretation
of the ambiguous contract”); T-3 Martinsville, LLC v. US Holding,
LLC, 911 N.E.2d 100, 121 (Ind. Ct. App. 2009) (affirming summary
evidence” that alleged tortfeasor “made any false or misleading
written statement . . . with the intent to obtain property”); DBL
Axel, 977 N.E.2d at 365 (affirming summary judgment on conversion
demonstrate the degree of culpability necessary to establish any
of the Tort Claims”); Tobin v. Ruman, 819 N.E.2d 78, 86 (Ind. Ct.
App. 2004) (affirming summary judgment on fraud claim where “our
review of the designated evidence reveals that Tobin’s fraud claim
is, in fact, merely a repackaged version of his breach of contract
As Plaintiffs note, the summary judgment standard of
review differs from the Rule 12(b)(6) standard the Court is to
The purpose of a Rule 12(b)(6) motion to dismiss is
“to test the sufficiency of the complaint, not to decide the
Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.
This standard requires the Court to accept as true all
well pled facts alleged by Plaintiffs and draw all permissible
inferences in their favor.
See Parish, 614 F.3d at 679.
“[f]actual allegations must be enough to raise a right to relief
above the speculative level.”
Twombly, 550 U.S. at 555.
In Sheridan Health Care Center, Inc. v. Centennial Healthcare
Corp., No. IP01-0186CMS, 2001 WL 1029111 (S.D. Ind. June 19, 2001),
the court denied a motion to dismiss a CVRA conversion claim and
rejected the argument that the claim was simply one for breach of
Id. at *6.
In doing so, the court relied on Indiana
case law that did not find the existence of a contract between the
parties to be dispositive, but instead, looked to evidence of the
individual elements of a conversion claim to reach a decision.
Id. (citing Gilliana v. Paniaguas, 708 N.E.2d 895 (Ind. Ct. App.
1999), and NationsCredit Commercial v. Grauel Enter., 703 N.E.2d
1072 (Ind. Ct. App. 1998)).
“[T]he [Indiana] courts stressed that
unlike the ‘innocent breach of contract’ action, in a civil
conversion action, the party alleging the civil conversion must
prove the criminal intent element.”
Id. (citations omitted); see
French-Tex Cleaners, 893 N.E.2d at 1167 (“It is this mens rea
requirement that differentiates criminal conversion from a more
innocent breach of contract or failure to pay a debt, which
situations the criminal conversion statute was not intended to
The Sheridan court denied the motion to dismiss the
conversion claim because the plaintiff had adequately alleged its
2001 WL 1029111 at *6.5
To state a CVRA claim based on criminal deception, Plaintiffs
must allege that Defendants knowingly or intentionally made a false
or misleading written statement with intent to obtain property,
and that Plaintiffs suffered a loss as a result.
Ind. Code §§ 34–
commission statements reflect the amount they believe is due to
Plaintiffs under the Agreements, this is not alleged in the
Rather, Count IV alleges that “Defendants knowingly or
intentionally made false or misleading written statements (each
commission statements provided to [Plaintiffs]) with the intent to
obtain property” and “reaped millions of dollars in proceeds,
Plaintiffs also rely upon Koger v. T & C, Inc., 9 N.E.3d 259 (Ind.
Ct. App. Mar. 18, 2014) (Table), in support of their argument. As
noted by Defendants, Koger was an unpublished memorandum decision.
An unpublished memorandum decision of the Court of Appeals of
Indiana “shall not be cited to any court except by the parties to
the case to establish res judicata, collateral estoppel, or law of
the case.” Ind. R. App. P. 65(D).
“A person engages in conduct ‘knowingly’ if, when he engages in
the conduct, he is aware of a high probability that he is doing
Ind. Code § 35-41-2-2(b).
“A person engages in conduct
‘intentionally’ if, when he engages in the conduct, it is his
conscious objective to do so.” Ind. Code § 35-41-2-2(a).
otherwise intended for the retirement of [Plaintiffs], by using
these commission statements in the manner they did.”
Drawing all permissible inferences in Plaintiffs’
favor, Count IV does not allege an innocent breach of contract,
but rather, alleges that Defendants knowingly or intentionally
Plaintiffs in order to underpay them. Cf. Dunlap, 2012 WL 1712554,
at *9-*10 (dismissing conversion claim that merely alleged that
“Defendants failed to pay the amounts owed, and failed to provide
Plaintiffs the promised stock ownership” because it was “little
more than a repackaged version” of breach of contact claim).
Defendants also argue that Count IV should be dismissed
because the only pecuniary losses alleged in Count IV are the same
losses alleged in Plaintiffs’ breach of contract claims.
cite Epperly v. Johnson, 734 N.E.2d 1066 (Ind. Ct. App. 2000), in
which the court reversed a punitive damages award based on a fraud
claim where “[t]he misrepresentation did not result in injury
distinct from that resulting from the breach [of contract], and it
thus is not independently actionable as fraud.”
Id. at 1073.
Defendants also rely upon Fritzinger v. Angie's List, Inc., No.
1:12-CV-01118-JMS, 2013 WL 772864, *3 (S.D. Ind. Feb. 28, 2013),
in which the court dismissed CVRA claims that failed to allege an
independent tort and a separate distinct injury.
Plaintiffs do not deny that the Complaint alleges the same
injury for their breach of contract and deception claims.
they maintain that the independent injury requirement does not
extend to CVRA claims.
Epperly did not address a CVRA claim, but
rather, addressed a fraud claim.
And while Fritzinger dismissed
CVRA claims that failed to allege a distinct injury, the court had
also found that the CVRA claims failed to allege an independent
Here, in contrast, Count IV alleges an independent tort.
Plaintiffs also cite Indiana cases in which the damages claim and
amount were the same for the breach of contract and CVRA claims.
See, e.g., Larson, 979 N.E.2d at 662 (same damages for CVRA
conversion claim and breach of oral contract for commissions);
Longhi, 914 N.E.2d at 846 (same damages for CVRA deception claim
and breach of contract to build house).
Given the Indiana case
law awarding damages under the CVRA where plaintiffs sought the
same damages for breach of contract, the Court declines to dismiss
Count IV based solely on the lack of an alleged independent injury.
Defendants argue that Count IV does not satisfy the heightened
pleading requirements of Federal Rules of Civil Procedure Rule
Rule 9(b) requires that a party “state with particularity
the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “[A]
plaintiff ordinarily must describe the ‘who, what, when, where,
and how’ of the fraud.”
Pirelli Armstrong Tire Corp. Retiree Med.
Benefits Trust v. Walgreen Co., 631 F.3d 436, 441–42 (7th Cir.
2011) (citation omitted).
Courts apply the heightened pleading
standard of Rule 9(b) to claims of criminal deception.
Heartland Recreational Veh., LLC v. Forest River, Inc., No. 3:08CV-490ASCAN, 2009 WL 1085837, at *4 (N.D. Ind. Apr. 22, 2009).
Defendants contend that Count IV fails to satisfy Rule 9(b)
because it offers no degree of particularity, and merely refers to
earlier paragraphs in the Complaint.
The Court disagrees.
IV explicitly incorporates the prior allegations of the Complaint.
(DE #1, ¶126.)
The Complaint provides representative examples of
alleges that Plaintiffs did not know, and could not tell from the
statements, that Defendants failed to pay them commissions for all
Biomet product sales from their former territories.
46.) It further alleges that Defendants knowingly or intentionally
made these false or misleading commission statements, and procured
proceeds intended for Plaintiffs by doing so.
The Complaint alleges that Defendants (the who) concealed their
underpayment of Plaintiffs’ retirement commissions (the what) by
sending fraudulent or misleading commission statements (the how)
to Plaintiffs (the where, reasonably inferred to be Plaintiffs’
states of citizenship) on a monthly or semi-monthly basis from the
inception of their retirement-income payments (the when).
1-6, 11, 17, 42-47, 127-28.)
As such, Count IV states a claim for
relief under the heightened Rule 9(b) motion to dismiss standard.
Defendants argue that Count V should be dismissed because it
asserts a theory of recovery rather than a standalone claim. Count
V alleges that the transaction resulting in the formation of Zimmer
Biomet was a merger, or alternatively, a de facto merger, and that
Zimmer Biomet is responsible for the liabilities of Biomet as a
result of the de factor merger.
(DE #1, ¶134.)
It also alleges
that Zimmer Biomet is a “mere continuation” of Biomet (id., ¶135),
that Biomet and Zimmer Biomet are operated as a single entity,
whereby Biomet serves as the alter ego of Zimmer Biomet (id.,
¶136), and that “[t]here is such unity of interest and ownership
between Zimmer Biomet and Biomet that the interests of Zimmer
Biomet and Biomet are inseparable, and the adherence to a fiction
of separate entities would sanction fraud or promote injustice”
toward Plaintiffs such that “the Court should pierce the corporate
veil and hold that Zimmer Biomet is legally obligated to honor the
terms of the Agreements” (id., ¶¶138-39).
Defendants argue that
Count V should be dismissed because “[p]iercing the corporate veil
is not an independent cause of action, nor a separate claim.”
United States v. ARG Corp., No. 3:10-CV-00311-PPS, 2014 WL 88928,
at *2 (N.D. Ind. Jan. 7, 2014) (citing Reed v. Reid, 980 N.E.2d
277, 301 (Ind. 2012)).
Plaintiffs respond that the cases cited by Defendants ruled
in favor of the parties asserting claims for piercing the corporate
In Reed, the plaintiff sought to impose liability on other
corporate entities allegedly owned or controlled by a defendant,
and advanced “several theories” in support of these claims.
N.E.2d at 297; see id. at 299-301 (addressing de facto merger,
mere continuation, and piercing the corporate veil).
independent causes of action, but ‘merely furnish a means for a
complainant to reach a second corporation or individual upon a
cause of action that otherwise would have existed only against the
Reed, 980 N.E.2d at 297-98 (quoting 1 William
Meade Fletcher, Fletcher Cyc. of the Law of Corp. § 41.10 at 136
(perm. ed. rev. vol. 2006)).
In a footnote, the court noted that
the plaintiff had made “a separate claim to pierce the corporate
Id. at 298 n.16.
The court affirmed the denial of summary
judgment of that claim, explaining that “[p]iercing the corporate
veil involves a highly fact-sensitive inquiry that is not typically
appropriate for summary disposition.”
Id. at 303.
complaint to seek recovery under a piercing the corporate veil
theory of liability.
2014 WL 88928, at *2.
The amended complaint
asserted a single claim for the recovery of certain costs, but
added allegations that a defendant had abused the corporate form,
and so should be held liable for the costs under the corporate
The defendants moved to dismiss,
arguing that the amendment was barred by the statute of limitations
and failed to state a claim for piercing the corporate veil.
The court rejected the defendant’s statute of limitation argument
because the original complaint stated the same claim against the
defendant for recovery of costs; the amended complaint “simply
added a new theory of recovery.”
The court explained that
“[p]iercing the corporate veil is not an independent cause of
action, nor a separate claim.”
Id. (citing Reed, 980 N.E.2d at
“It is a remedy, a ‘means of imposing liability on an
underlying cause of action such as a tort or breach of contract.’”
Id. (quoting 1 Fletcher Cyc. Corp. § 41.10 at 136).
then considered the plaintiff’s allegations, and found that they
“sufficiently alleged a claim for piercing the corporate veil.”
Id. at *3.
The Court agrees with Defendants that piercing the corporate
veil is not an independent cause of action in Indiana.
footnote mentioning the existence of a separate veil-piercing
claim is not sufficient to counter the Supreme Court of Indiana’s
admonition that theories imposing liability on other corporate
entities allegedly owned or controlled by a defendant “create no
independent causes of action.”
980 N.E.2d at 297.
therefore GRANTS Defendants’ motion to dismiss Count V.
the Court notes that these theories are alleged elsewhere in the
Complaint, albeit in a more cursory manner.
For example, Count I
alleges that Zimmer Biomet is responsible for the underpayment of
retirement commissions to Plaintiffs “under the doctrines of ‘de
facto merger,’ ‘mere continuation,’ ‘alter ego,’ and/or ‘piercing
the corporate veil.’”
(DE #1, ¶90; see id., ¶¶58-78 (alleging
facts to support these theories of recovery).)
As such, these
theories remain pending in this litigation.
Finally, Count VI seeks a declaratory judgment that: (1)
Plaintiffs are entitled to retirement commission income on all
Plaintiffs are entitled to retirement commission income on all
respective territories since the merger; and (3) Zimmer Biomet is
liable for Biomet’s obligations pursuant to the merger and under
the doctrines of de facto merger, mere continuation, alter ego,
and piecing the corporate veil.
(DE #1, ¶143.)
that Count VI is based solely on the Plaintiffs’ other theories of
liability, and therefore is duplicative.
“When declaratory relief
The Pantry, Inc. v. Stop-N-Go Foods, Inc., 777 F. Supp.
declaratory judgment claim where the claim “is inappropriately
raised because the plaintiff may be fully compensated if it
prevails on the breach of contract claim”); see Lansing v. Carroll,
declaratory judgment claim (Count I) fails to add anything not
already raised in the breach of contract claim (Count II), in an
Plaintiffs respond that they properly pled facts to support the
three claims for declaratory judgment in Count VI, and that the
Court cannot determine the parties’ rights and obligations at
They do not assert that their declaratory
judgment claim differs in any way from other claims raised in the
essentially seeks the same relief sought in Counts I (breach of
contract), III (breach of contract), and V (piercing the corporate
veil). As explained above, the only viable claim for relief stated
in Count III is duplicative of Count I.
While Count V does not
allege an independent cause of action, the theories asserted in
Count V are also alleged in Count I, and thus, remain pending.
such, the declaratory judgment claim does not state a viable claim
for relief that is not already raised in Count I.
VI fails to add any viable claim for relief not already raised in
Count I, the Court in an exercise of its discretion DISMISSES Count
For the reasons set forth above, Defendants’ Motion to Dismiss
(DE# 18) is GRANTED IN PART and DENIED IN PART.
V, and VI are DISMISSED.
February 16, 2017
Counts I and IV remain pending.
/s/ RUDY LOZANO, Judge
United States District Court
Counts II, III,
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