ZelTiq Aesthetics, Inc. v. Medshare, Inc, et al

Filing 68

MEMORANDUM OPINION by Senior Judge Charles R. Simpson, III on 5/27/2015 - the Court will grant the 50 Motion to Dismiss for Failure to State a Claim Defendants' Counterclaims in its entirety. A separate Order will be entered consistent with this Memorandum Opinion.cc:counsel (DAK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:14-CV-213-CRS

ZELTIQ AESTHETICS, INC.

PLAINTIFF

v.
MEDSHARE, INC., et al.

DEFENDANTS
MEMORANDUM OPINION

Zeltiq Aesthetics, Inc. (“Zeltiq”) sued Medshare, Inc. (“Medshare”) and several of its
employees for trademark infringement, false advertising, and unfair competition under the
Lanham Act. Medshare responded with five counterclaims. Zeltiq now argues that the
counterclaims are meritless and moves to dismiss all of them. For the reasons that follow, the
Court agrees and will grant the motion in its entirety.
I.
Medshare operates a health and wellness center in Louisville, Kentucky. (DN 49, PageID
# 536 ¶ 11.) According to the counterclaim, Zeltiq markets and distributes what it calls
“coolsculpting” devices to health and wellness centers. (Id. at ¶ 12.) It also claims to be the
exclusive licensee of a patented technology known as “Cryolipolysis,” a “technique” that cools
targeted areas on the body to break down and ultimately eliminate the underlying fatty tissue
through the body’s waste-elimination processes. (Id. at PageID # 536 ¶ 12-13.) According to
Medshare, that technology has been utilized by many entities for decades. (Id. at ¶ 14.)
The counterclaim alleges that, “[i]n the latter part of 2013,” a representative for Zeltiq
named Angela Betner “communicated with Medshare personnel through both e-mails and by
personal, face to face visits at Medshare’s facility to promote and market the use of Zeltiq’s

coolsculpting machines and services.” (Id. at ¶ 15.) Moreover, it alleges that “Zeltiq did deliver
a substantial amount of marketing material to Medshare and induced Medshare to begin
advertising Zeltiq’s products and services to Medshare’s clients.” (Id. at ¶ 16.) Next, it claims
that “Zeltiq further promised to provide financing to Medshare to purchase the coolsculpting
machine, it promised to provide training to Medshare’s staff on the use of the coolsculpting
machine, and further promised to deliver a coolsculpting machine to Medshare in time for
Medshare to be able to begin applying treatments to the clients it had booked.” (Id. at ¶ 17.) The
counterclaim’s facts section concludes: “Despite its promises and after inducing Medshare to
expend substantial resources to promote and advertise the arrival of Zeltiq’s coolsculpting
machine and the services it provides, Zeltiq failed to deliver the coolsculpting machine to
Medshare and it failed to provide the financing to enable Medshare to purchase the machine.”
(Id. at PageID # 537-38 ¶ 18.)
Based on these allegations, Medshare alleges: (1) breach of contract; (2) tortious
interference and/or abuse of process; (3) fraud; (4) fraudulent inducement; and (5) punitive
damages. Zeltiq moved to dismiss all claims. The Court will consider each in turn.
II.
In order to survive dismissal for failure to state a claim, “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, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550 U.S. at 556). “[A] district court must (1) view the complaint
in the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as

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true.” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citation
omitted). “But the district court need not accept a bare assertion of legal conclusions.” Id. at
488 (citation omitted). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation
of the elements of a cause of action will not do.’ Nor does a complaint suffice if it tenders
‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 555, 557).
III.
The Court first considers Medshare’s breach of contract claim. Generally, a breach of
contract claim under Kentucky law requires: (1) a valid and enforceable contract; (2) a breach of
that contract; and (3) damages caused by that breach. Ward v. Daugherty, 14 S.W.2d 1089, 1089
(Ky. 1929). Unless the statute of frauds applies, a contract may be written or oral. See Israel’s
Admr’r v. Rice, 174 S.W.2d 517, 518-19 (Ky. 1943). Of course, “[n]ot every agreement or
understanding rises to the level of a legally enforceable contract.” Kovacs v. Freeman, 957
S.W.2d 251, 254 (Ky. 1997). Rather, a valid contract requires (1) offer and acceptance, (2) full
and complete terms, and (3) consideration. Coleman v. Bee Line Courier Serv., Inc., 284 S.W.3d
123, 125 (Ky. 2009). To satisfy the second element, “the terms of a contract must be sufficiently
complete and definite to enable the court to determine the measure of damages in the event of
breach.” Kovacs, 957 S.W.2d at 254. And to satisfy the third, the general rule is that
“[m]utuality of obligations is an essential element of a contract, and if one party is not bound,
neither is bound.” Id. (citing Morgan v. Morgan, 218 S.W.2d 410 (Ky. 1949)).
While incorporating the facts described in Part I above, the counterclaim asserts the
following to establish the breach of contract claim:
20.
Zeltiq’s promises to Medshare were to (1) provide financing for the
purchase of a coolsculpt machine and (2) deliver for Medshare’s use at its facility

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a coolsculpt machine to administer the procedures set forth in the marketing
materials Zeltiq provided to Medshare which constitutes a contract.
21.
Zeltiq’s failure to provide the requisite financing to Medshare and to
deliver the coolsculpt machine to Mesdhare constitutes a breach of Zeltiq’s
contractual obligations.
22.
As a result of Zeltiq’s breach, Medshare has suffered damages in an
amount to be proved at trial.
(DN 49, PageID # 538 ¶¶ 20-22.)
This pleading is deficient under both Kentucky law and the federal pleading standards. It
says that Zeltiq promised to provide financing and to deliver a coolsculpt machine. Was this an
offer? If it was, what were the terms of the financing? Of the machine delivery? If it was an
offer and if it did contain full and complete terms, did Medshare accept? And if Medshare did
accept, did it provide any consideration? The counterclaim does not allege a writing; but is this a
transaction for the sale of goods in excess of $500 which would require a writing under
Kentucky’s statute of frauds, KRS 355.2-201? Medshare’s pleading fails to answer any of these
questions; in fact, it fails to establish a single element of a valid and enforceable contract under
Kentucky law. As such, it fails to establish a plausible breach of contract claim and falls well
short of the Twombly and Iqbal pleading requirements. It will be dismissed.
IV.
Next, the Court considers Medshare’s claims for “tortious interference and/or abuse of
process.” Medshare’s only response to Zeltiq’s motion to dismiss this claim is that it “believe[s]
that the facts as alleged in the Counterclaim, and facts revealed through discovery, will prove the
tortious interference/abuse of process claims as sought in Count II.” In total, the “facts” asserted
in the counterclaim used to establish these claims are:
24.
Zeltiq has continually sought to interrupt the business activities of
Medshare by filing false allegations in complaints in Court.

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25.
Zeltiq has engaged in a pattern of conduct that includes interfering
with the employees, officers and/or directors of Medshare by naming them as
defendants in this lawsuit for acts and/or omissions performed in the course of
their employment, for no other purpose than to intimidate those individuals and
interrupt Medshare’s business.
26.
Through its counsel, Zeltiq has delivered threatening
communications to unaffiliated, nonparty businesses, using the instant lawsuit as a
sword to intimidate other users of Cryolipolysis technologies into submitting to
Zeltiq’s demand to cease competition in the marketplace.
27.
Zeltiq’s actions constitute tortious interference with business
relationships and as a result, Medshare and its employees have suffered injuries in
an amount to be proved at trial.
(DN 49, PageID # 538-39.) Though Medshare’s counterclaim combined the two claims, the
Court will treat them separately.
A.
Under Kentucky law, the tort of intentional interference with business relations arises
when one improperly interferes with future or existing contractual relations. See Nat’l Collegiate
Athletic Ass’n v. Hornung, 754 S.W.2d 855, 857 (Ky. 1988). It is not entirely clear from
Medshare’s pleading whether it accuses Zeltiq of interfering with its existing contractual
relations or its future contractual relations. The Court will address both.
To establish a claim for intentional interference with an existing contract, Medshare must
prove that Zeltiq “intentionally and improperly interfere[d] with the performance of a contract . .
. between [Medshare] and a third person by inducing or otherwise causing the third person not to
perform the contract . . . .” Harrodsburg Indus. Warehousing, Inc. v. MIGS, LLC, 182 S.W.3d
529, 533 (Ky. App. 2005) (quoting Restatement (Second) of Torts § 766 (1979)). Here,
Medshare’s counterclaim does not identify a single contract (or even a relationship with a third

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party) with which Zeltiq interfered. Without that, Medshare cannot assert a plausible claim for
tortious interference with a contract. The claim will be dismissed.
To establish a claim for intentional interference with a prospective contractual relation,
Medshare must prove that Zeltiq “intentionally and improperly interfere[d] with [Medshare]’s
prospective contractual relation . . ., whether the interference consists of (a) inducing or
otherwise causing a third person not to enter into or continue the prospective relation or (b)
preventing [Medshare] from acquiring or continuing the prospective relation.” Id. (quoting
Restatemetn (Second) of Torts § 766B (1979)). Here, the closest that Medshare gets to
identifying a prospective contractual relation is its claim that Zeltiq’s attorney “delivered
threatening communications to unaffiliated, nonparty businesses, using the instant lawsuit as a
sword to intimidate other users of Cryolipolysis technologies into submitting to Zeltiq’s demand
to cease competition in the marketplace.” (DN 49, PageID # 529 ¶ 26.) Yet even this fails to
allege a prospective contractual relation, since it only refers to communications made to
unidentified “unaffiliated, nonparty businesses.” This claim will also be dismissed.
B.
Having found that Medshare’s tortious interference claims fail, the Court next considers
the abuse of process claim. Kentucky law defines “an abuse of process claim as the improper
‘use of a legal process, whether civil or criminal, against another primarily to accomplish a
purpose for which that process is not designed.’” Garcia v. Whitaker, 400 S.W.3d 270, 275 (Ky.
2013) (quoting Simpson v. Laytart, 962 S.W.2d 392, 394 (Ky. 1988)). “The essential elements
of an action for abuse of process are (1) an ulterior purpose and (2) a willful act in the use of the
process not proper in the regular conduct of the proceeding.” Simpson, 962 S.W.2d at 395
(citing Bonnie Braes Farms Inc. v. Robinson, 598 S.W.2d 765 (Ky. App. 1980)). “Some definite

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act or threat not authorized by the process, or aimed at an objective not legitimate in the use of
the process is required . . . .” Id. As such, “there is no liability where the defendant has done
nothing more than carry out the process to its authorized conclusion even though with bad
intentions.” Id. at 394-95.
Here, the abuse of process claim is entirely premised on Zeltiq’s lawsuit against
Medshare and its employees. In the counterclaim, Medshare says that “Zeltiq has continually
sought to interrupt the business activities of Medshare by filing false allegations in complaints in
Court.” (DN 49, PageID # 538 ¶ 24.) Additionally, it alleges that “Zeltiq has engaged in a
pattern of conduct that includes interfering with the employees, officers and/or directors of
Medshare by naming them as defendants in this lawsuit for acts and/or omissions performed in
the course of their employment, for no other purpose than to intimidate those individuals and
interrupt Medshare’s business.” (Id. at PageID # 538-39 ¶ 25.)
Medshare’s counterclaim fails to satisfy the second element of an abuse of process
claim—it does not establish that Zeltiq performed a willful act not proper in the regular course of
proceeding. Even assuming Zeltiq’s pending claims for trademark infringement, false
advertising, and unfair competition are completely without merit (and they are still pending),
“Kentucky courts have declined to find that a plaintiff has stated a claim for abuse of process
where the defendant has done nothing more than file a lawsuit that lacked any legal basis for the
purpose of retaliation.” Kinslow v. Fifth Third Bank, Inc., 529 F. App’x 467, 473 (6th Cir. 2013)
(citing Sprint Commc’ns, 307 S.W.3d at 119; Deters v. Taliaferro, No. 2009-CA-1344-MR, 2010
WL 3719917, at *2 (Ky. App. Sept. 17, 2010)). Moreover, the Kentucky Supreme Court has
“strongly suggested” that “filing an action and serving process” cannot satisfy the second
element of an abuse of process claim. Kinslow, 529 F. App’x at 473 (citing Simpson, 962

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S.W.2d at 394-95; Sprint Commc’ns, 307 S.W.3d at 114, 119). Medshare has only alleged that
Zeltiq filed the initial lawsuit to disrupt Medshare’s business and intimidate its employees. Even
if this were true, the claim fails. Medshare’s conclusory allegation that the claims against it are
meritless cannot support the second element of its abuse of process claim. If it could, every
business faced with what it believed to be a meritless suit could assert an abuse of process
counterclaim. But that is not the law in Kentucky. This claim will be dismissed.
V.
The Court next reviews Medshare’s claims for fraud and fraudulent inducement. Federal
Rule of Civil Procedure 9 requires that a party alleging fraud “state with particularity the
circumstances constituting fraud . . . .” Fed. R. Civ. P. 9(b). “In complying with Rule 9(b), a
plaintiff, at a minimum, must allege the time, place, and content of the alleged misrepresentation
on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the
injury resulting from the fraud.” United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342
F.3d 634, 643 (6th Cir. 2003). In other words, the pleading “must (1) specify the statements that
the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were fraudulent.” Frank v. Dana
Corp., 547 F.3d 564, 570 (6th Cir. 2008) (quotations omitted). This rule is designed to “alert
defendants as to the particulars of their alleged misconduct so that they may respond,” and also
“to prevent ‘fishing expeditions,’ to protect defendants’ reputations from allegations of fraud,
and to narrow potentially wide-ranging discovery to relevant matters.” Chesbrough v. VPA,
P.C., 655 F.3d 461, 466 (6th Cir. 2011) (quotations and citations omitted).
Count III of Medshare’s counterclaim, labeled “Fraud,” incorporates the prior facts in the
counterclaim before stating:

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29.
Zeltiq’s representations that it would provide financing to Medshare,
deliver a coolsculpt machine to Medshare’s facility and train Medshare’s staff on
the use of the coolsculpt machine in time for Medshare to begin treating its
patients were false when Zeltiq’s representatives made them.
30.
Medshare relied on Zeltiq’s representations by promoting and advertising
Zeltiq’s products and marketing materials and by enticing its patients to make
appointments for the coolsculpt treatments.
31.

Zeltiq knew that Medshare had relied on Zeltiq’s representations.

32.
As a result of Medshare’s reliance on Zeltiq’s false representations,
Medshare has been damaged in an amount to be proved at trial.
(DN 49, PageID # 539.) Count IV, labeled “Fraudulent Inducement,” is nearly identical.
These four paragraphs fall well short of the Rule 9(b) pleading requirements. While the
counterclaim identifies the general nature of the statements that Medshare claims were
fraudulent, it fails every other element. Who made the statements? Where did he or she make
them? When? And why were these statements fraudulent? Also, how was Medshare injured by
the statements? To answer these questions, Medshare merely relies on legal conclusions and
recitations of the elements of recovery that would fail Twombly and Iqbal. They fall well short
of the heightened pleading requirements of Rule 9. Both claims will be dismissed.
In its response brief, before it could finish explaining why its fraud and fraudulent
inducement claims should proceed, Medshare abruptly asks the Court for leave to amend its
complaint because its “fraud and fraudulent inducement claims are more along the lines of a
claim for misrepresentation rather than fraud or fraudulent inducement.” (DN 57, PageID #
590.) Medshare adds no new facts, arguing that the “facts as alleged in support of fraud and
fraudulent inducement suffice to support a claim of misrepresentation.” (Id. at PageID # 591.)
For starters, this is not a proper avenue for amending the counterclaim. See Stanley Warranty,
LLC v. Universal Adm’rs, Inc., No. 3:13-cv-513-JGH, 2014 WL 4805669 at *6 n.5 (W.D. Ky.

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Sept. 26, 2014). In addition, amendment would be futile because “Kentucky courts have
recognized that intentional misrepresentation and fraud have the same meaning under Kentucky
common law.” Minger v. Green, 239 F.3d 793, 800 n.3 (6th Cir. 2001). For both of these
reasons, this request will be denied.
VI.
That leaves the punitive damages claim. “[A] claim for punitive damages is not a
separate cause of action, but a remedy potentially available for another cause of action.” Dalton
v. Animas Corp., 913 F. Supp. 2d 370, 378 (W.D. Ky. 2012). Medshare has no remaining causes
of action, so the punitive damages claim must also be dismissed.
A separate Order will be entered consistent with this Memorandum Opinion.

May 27, 2015

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Counsel of Record

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