Demandforce, Inc. et al v. Patterson Dental Supply, Inc.
Filing
81
ORDER granting 73 Motion to Dismiss/General: IT IS HEREBY ORDERED that: Pattersons Motion to Dismiss (Docket No. 73) is GRANTED; and Counts II through VI of the Amended Complaint (Docket No. 71) are DISMISSED without prejudice. (Written Opinion) Signed by Judge Paul A. Magnuson on 9/26/2019. (JEP)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Demandforce, Inc., Sesame
Communications, Inc., and
Henry Schein One, LLC,
Civ. No. 19-1116 (PAM/HB)
Plaintiffs,
v.
MEMORANDUM AND ORDER
Patterson Dental Supply, Inc.,
Defendant.
This matter is before the Court on Defendant’s Motion to Dismiss Counts II through
VI of the Amended Complaint. For the following reasons, the Motion is granted.
BACKGROUND
Defendant Patterson Dental Supply is a software company that develops and
licenses a computerized practice management system to dental practices. This system,
called Eaglesoft, allows dental practices to efficiently manage patient records, billing, and
insurance reimbursement, among other tasks. (Am. Compl. (Docket No. 71) ¶¶ 26, 9.)
Plaintiff Demandforce, Inc., is a wholly owned subsidiary of Plaintiff Sesame
Communications, Inc. (Id. ¶ 3.) The two entities develop and license software to dental
practices to allow the practice to automate its appointment reminders to patients. (Id. ¶ 2.)
The Demandforce/Sesame software works in conjunction with the practice’s existing
practice management software, such as EagleSoft.
(Id. ¶ 24.)
Because of this,
Demandforce and Sesame enter into license agreements with the practice management
software developer. Plaintiffs’ agreements with Patterson are called Token Agreements,
because they provide Demandforce and Sesame with “tokens” that permit access to
information in the practice’s Eaglesoft system database. (Id. ¶ 32; see also Lewis Decl.
(Docket No. 20) Exs. C, D (Token Agreements between Plaintiffs and Patterson).)
Plaintiff Henry Schein One, Inc. (“HS1”) is a joint venture between Sesame’s parent
corporation and a subsidiary of Henry Schein, Inc. (Id. ¶ 4.) Henry Schein is a developer
and licensor of practice management software to dental practices and is a direct competitor
of Patterson. (Id. ¶ 5.) HS1 “combines the practice management software of Henry Schein
and the marketing automation and customer communications software of Demandforce and
Sesame into a single connected management system targeted to dental practices . . . .” (Id.
¶ 4.)
The parties were engaged in negotiations regarding new Token Agreements when
Patterson learned of the HS1 joint venture. (Id. ¶ 36.) The negotiations were unsuccessful,
and shortly after the public announcement of HS1, Patterson terminated the Token
Agreements with Demandforce and Sesame. (Id.) According to the terms of the Token
Agreements, any party may terminate the agreements for any reason with 90 days’ written
notice. (Lewis Decl. Ex. C ¶ 9(a).) Patterson’s termination notices were effective on
October 31, 2018.
Patterson then began to send notices to its customers who also used Demandforce
and Sesame products. These notices stated that, after October 31, 2018, “any interface
between Eaglesoft and [Plaintiffs’] products . . . will no longer be permitted.” (Am. Compl.
¶ 38; see also Lewis Decl. Ex. G.) Plaintiffs also contend that “Patterson further informed
one or more customers that continued use of [Plaintiffs’] products by the customer after
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that date would be unlawful.” (Id.) Plaintiffs do not specify whether this “unlawful”
statement is separate from the “no longer permitted” statement in the letters Patterson sent.
According to Plaintiffs, they have attempted to reach a “commercially reasonable
solution” to continue doing business with Patterson but have been unable to do so. (Id.
¶ 42.) Customers have stopped using Plaintiffs’ products “because of the fear Patterson
has improperly and unlawfully sown in the marketplace.” (Id. ¶ 46.)
Plaintiffs first brought suit in California, alleging various torts under California law
and seeking a declaratory judgment regarding their and their customers’ rights. Patterson
moved to dismiss and to transfer venue, and the California court transferred the case to
Minnesota without addressing the merits of the motion to dismiss. Shortly thereafter,
Plaintiffs amended their Complaint to assert tort claims under Minnesota and Delaware
law.
Specifically, Plaintiffs contend that Patterson’s conduct amounts to product
disparagement under Minnesota law (Count II), trade libel under Delaware law (Count III),
violation of the Minnesota Deceptive Trade Practices Act (Count IV) and Delaware
Deceptive Trade Practices Act (Count V), and unfair competition under Delaware law
(Count VI). Count I seeks a declaration “that [Plaintiffs’] actions and those of their dental
practice customers who utilize Plaintiffs’ Products do not violate any of Patterson’s legal
rights and that Plaintiffs’ customers may continue to utilize [Plaintiff’s] Products.” (Id.
¶ 66.) Patterson has moved to dismiss the tort claims but not the declaratory-judgment
claim.
DISCUSSION
To survive a motion to dismiss under Rule 12(b)(6), a complaint need only “contain
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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)); see also Fed. R. Civ. P. 12(b)(6). A claim bears facial
plausibility when it allows the Court “to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. When evaluating a motion
to dismiss under Rule 12(b)(6), the Court must accept plausible factual allegations as true.
Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 660 (8th Cir. 2012). But “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory statements,” are
insufficient to support a claim. Iqbal, 556 U.S. at 678.
Patterson argues that the parties’ Agreements allowed it to do what it did, and that
Plaintiffs have failed to plead any facts to establish that its statements were false. In other
words, Patterson contends that its statement is true—connection between Plaintiffs’
products and Eaglesoft would “no longer be permitted” after October 31, 2018, because,
having terminated the Token Agreements, Plaintiffs’ products no longer had a license to
access Eaglesoft. Plaintiffs do not dispute that a true statement cannot form the basis of
any of Plaintiffs’ tort claims, whether under Minnesota law or Delaware law.
Plaintiffs counter that whether a statement is true or false is a question that cannot
be resolved on a motion to dismiss. But this is not a case where the Court must accept a
plausible allegation as true. Rather, this is a case where the allegation is not plausible
because of the other allegations in the pleadings and information in the documents
“necessarily embraced by the pleadings.” Porous Media Corp. v. Pall Corp., 186 F.3d
1077, 1079 (8th Cir. 1999) (quotation omitted). Plaintiffs’ Amended Complaint references
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the parties’ Token Agreements, and thus those agreements are necessarily embraced by the
pleadings.
The pleadings and the Token Agreements establish that Patterson’s statements
regarding unpermitted interface are true. Patterson terminated the parties’ Agreements, as
the Agreements allowed it to do. And after the Agreements’ termination, Plaintiffs’
products were no longer allowed to interface with Eaglesoft.1 Plaintiffs’ tort claims
regarding Patterson’s statements in the customer letter must be dismissed.
Whether Patterson’s alleged statement—that any use of Plaintiffs’ products after
October 31, 2018, would be “unlawful”—is true is less obvious. As noted, Plaintiffs do
not specify whether this is a separate statement from the letters Patterson sent. (See Pls.’
Opp’n Mem. (Docket No. 78) at 13 (“The statement that continued use of the software ‘will
no longer be permitted’ is also simply another variation of this same statement [that use
would be unlawful].”).) Indeed, in the hearing on this Motion, Plaintiffs’ counsel stated
that Patterson’s statement regarding unpermitted use is equivalent to stating that the use
would be unlawful. Counsel did not, however, indicate whether Plaintiffs allege that
Patterson’s “unlawful” statement was separate from the unpermitted use statement.
Assuming for the purposes of this Motion that Plaintiffs have sufficiently alleged
that Patterson made a separate statement that continued interface with Plaintiffs’ products
would be unlawful, the pleadings and documents do not definitively establish that such a
Plaintiffs’ argument that federal healthcare privacy laws prevent Patterson from
restricting access to patient information is not well taken with regard to Plaintiffs’ tort
claims. Patterson is not preventing access to patient information, it is enforcing its rights
with regard to the use of its software.
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statement is true.
Patterson argues that dismissal is nevertheless appropriate because Plaintiffs have
not pleaded this claim with sufficient particularity, and the tort claims involved here require
compliance with the heightened Rule 9(b) pleading standard. This Rule provides that when
“alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Plaintiffs do not dispute that their
Minnesota claims require heightened pleading but argue that the Delaware claims do not
require anything more than a “short and plain statement” under Fed. R. Civ. P. 8(a)(1).
Most of Plaintiffs’ Delaware claims sound in fraud and require heightened pleading,
just as the Minnesota claims do. See E.I. Dupont de Nemours & Co. v. Unifrax I LLC, No.
14cv1250, 2015 WL 4641615, at *1 (D. Del. Aug. 5, 2015) (dismissing Delaware
Deceptive Trade Practices Act claim for failure to comply with Rule 9(b)); Ateliers de la
Haute-Garonne v. Broetje Automation-USA Inc., 684 F. Supp. 2d 541, 546 (D. Del. 2010)
(finding unfair competition allegations sufficient under Rule 9(b)).
The only claim that is arguably not subject to the heightened pleading requirement
is Plaintiffs’ Delaware trade-libel claim, because there is no authority either applying Rule
9(b) or declining to apply Rule 9(b) to a Delaware trade-libel claim. This is likely because
it is an open question whether Delaware even recognizes a cause of action for trade libel
in the first instance. See Tri-State Energy Solutions, LLP v. KVAR Energy Sav. Inc., 884
F. Supp. 2d 168, 175 n.3 (D. Del. 2012) (noting that the parties assumed the existence of a
claim for trade libel under Delaware law, but cited law from other jurisdictions or for other
types of claims in support of that assumption). But most courts require heightened pleading
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for trade-libel claims. See G.U.E. Tech, LLC v. Panasonic Avionics Corp., No. SACV 15789, 2015 WL 12696203, at *4 (C.D. Cal. Sept. 15, 2015) (“[M]ost courts apply some sort
of heightened pleading standard to trade libel claims.”). Plaintiffs have cited no contrary
authority. Assuming that Delaware recognizes a cause of action for trade libel, Rule 9(b)
applies to that cause of action.
Plaintiffs argue that they have pled their claims with sufficient particularity under
the Rule. But the allegation that an unidentified individual at Patterson allegedly told “one
or more” unidentified customers that continued use of Plaintiffs’ products would be
“unlawful” does not describe the alleged conduct with particularity. (Am. Compl. ¶ 38.)
Indeed, Plaintiffs’ refusal to specify whether this is a separate statement or whether it is an
implication drawn from Patterson’s letter to its customers demonstrates that Plaintiffs have
not pled their claims regarding this statement with particularity. Plaintiffs contend that
Patterson knows which of its employees said this to which customers, but this contention
ignores Rule 9(b)’s requirements. It is always the case that a defendant should know how
it defrauded someone, but the Rules require a plaintiff to set forth the circumstances of that
fraud with particularity. Plaintiffs have utterly failed to do this here, and even if the
“unlawful” statement is false, Plaintiffs have failed to plead any claim regarding this
statement with particularity as Rule 9(b) requires.
Patterson asks that the Court dismiss Plaintiffs’ claims with prejudice, noting that
this is Plaintiffs’ second Complaint. But the first Complaint raised claims under California
law; the Amended Complaint is Plaintiffs’ first attempt to set forth claims under Minnesota
and Delaware law. Dismissal without prejudice is therefore appropriate.
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CONCLUSION
Accordingly, IT IS HEREBY ORDERED that:
1.
Patterson’s Motion to Dismiss (Docket No. 73) is GRANTED; and
2.
Counts II through VI of the Amended Complaint (Docket No. 71) are
DISMISSED without prejudice.
Dated: September 26, 2019
s/ Paul A. Magnuson
PAUL A. MAGNUSON
United States District Court Judge
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