Medical Facets NC LLC v. Medical Facets, LLC

Filing 41

ORDER denying 18 Motion to Dismiss Plaintiff's Amended Complaint. Signed by Senior Judge Graham Mullen on 11/21/2013. (eef)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:13-cv-00009GCM
MEDICAL FACETS NC LLC,

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Plaintiff,
v.
MEDICAL FACETS LLC,
Defendant.

ORDER

This matter is before the Court on Defendant’s Motion to Dismiss Counts I and III of
Plaintiff’s Amended Complaint.
Factual Background:
On February 10, 2011, Plaintiff, Medical Facets NC LLC, and Defendant, Medical Facets
LLC, entered into a Technology License Agreement (hereinafter “TLA”), which granted the
Plaintiff temporary license to sell and use medical faceted screws in exchange for providing
Defendant with (a) a cash payment of $100,000.00, (b) a $250,000.00 promissory note, and (c)
the payment of royalty fees from the net sales upon the commencement of business and sales of
the licensed technology. (Am. Compl. ¶¶ 7-9 and Ex. A). Following the execution of the TLA,
Plaintiff alleges that it has worked to bring Defendant’s licensed technology to market and
consulted with Defendant on numerous occasions regarding improvements and patent issues
related to the development of medical applications for faceted screw technology. (Id. at ¶¶ 19-20,
30-31). Plaintiff alleges that Defendant has relentlessly worked to stymy Plaintiff’s efforts to
manufacture and sell the licensed technology. Defendant has made numerous bad faith assertions
of breach and demanded unlawful payments from Plaintiff throughout 2012 and 2013, all with

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the apparent intent of rewriting the parties’ agreement to give Defendant even more than the
substantial money that it has already received and will continue to receive under the TLA. (Id. at
¶¶ 14-25, 29-43). Plaintiff alleges that Defendant’s threats and demands related to the use of the
licensed technology have caused Plaintiff to expend substantial resources and lose valuable time
in getting its start-up business up and running. (Id. at ¶¶ 45, 49, 51, 58). Plaintiff filed its First
Amended Complaint (the “Amended Complaint”) seeking a declaratory judgment that Plaintiff
has not breached the TLA and seeking damages caused by Defendant’s own breach of contract,
breach of the covenant of good faith and fair dealing, and unfair and deceptive trade practices.
Defendant has moved pursuant to Rule 12(b)(6) to dismiss Plaintiff’s claims for breach of
contract (Count I) and for unfair and deceptive trade practices (Count III).
Standard for 12(b)(6) motions:
“To survive a motion to dismiss, 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, 663 (2009). A complaint, therefore, must allege each necessary element of the claim.
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 562 (2007). Determining whether a complaint
meets this standard follows a “two-pronged approach.” Iqbal, 556 U.S. at 679.
First, the court begins by “identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.” Id. “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at
678. Moreover, a court should not assume the truth of “bald allegations” or legal conclusions.
Id. at 678-681 (discussing that the Federal Rules of Civil Procedure “do not unlock the doors of
discovery for a plaintiff armed with nothing more than conclusions”).

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Once the court eliminates conclusory pleadings, the court determines whether the
remaining factual allegations “plausibly give rise to an entitlement to relief.” Id. at 679. The
allegations must suffice to “raise a right to relief above the speculative level.” Twombly, 550
U.S. at 555. “[T]o survive a motion to dismiss, the complaint ‘must state a plausible claim for
relief’ that ‘permits the court to infer more than the mere possibility of misconduct’ based upon
‘its judicial experience and common sense.’” Coleman v. Md. Court of Appeals, 626 F.3d 187,
190 (4th Cir. 2010).
Discussion
I.

Breach of Contract:
The court will first address Defendant’s Motion to Dismiss Plaintiff’s breach of contract

claim. Under North Carolina law, a party must demonstrate two elements to establish a breach of
contract: “‘(1) existence of a valid contract and (2) breach of the terms of that contract.’” One
Beacon Ins. Co. v. United Mech. Corp., 207 N.C. App. 483, 487, 700 S.E.2d 121, 124 (2010)
(citation omitted). Defendant asserts this claim fails because Plaintiff failed to allege any specific
contractual breaches. Plaintiff argues that its breach of contract claim is founded upon
both Defendant’s breach of the TLA’s express terms, as well as its willful and continuous acts
designed to deny Plaintiff the benefits bargained for in the TLA. For example, Plaintiff alleges
that Section 8.4 of the TLA provides that parties may not unilaterally force modifications or
amendments to the TLA. (Am. Compl. ¶ 13). Plaintiff also alleges that it has performed under
the TLA and that Defendant has breached the agreement by demanding a forced modification of
the TLA and an unlawful payment of $10,000.00 in addition to the consideration it has already
received. (Id. at ¶¶ 13). Moreover, the Amended Complaint is replete with allegations of
Defendant’s bad faith attempts to intimidate Plaintiff and deny it the use of the licensed

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technology. (See, e.g., id. at ¶¶ 14-25, 29-43).
Contracts are composed of express and implied terms. See Maglione v. Aegis Family
Health Ctrs., 168 N.C. App. 49, 56, 607 S.E.2d 286, 291 (2005) (citation omitted). While
express terms encompass the actual language of the agreement, implied terms include any terms
that would be “necessarily implied ‘to effect the intention of the parties,’ and which are not in
conflict with the express terms.” Id. (citation omitted). “In every contract there is an implied
covenant of good faith and fair dealing that neither party will do anything which injures the right
of the other to receive the benefits of the agreement.” Bicycle Transit v. Bell, 314 N.C. 219, 228,
333 S.E.2d 299, 305 (1985). Thus, parties are bound by both the express and implied terms,
including good faith requirements, necessary to effectuate the bargain they struck.
Breach of the contract could occur through a violation of the express or implied provisions
therein. Plaintiff generally asserts that the TLA’s explicit provision governing contract
modifications or amendments, [Doc. No. 13-2, § 8.4; see also Doc. No. 13, ¶ 13], should be
interpreted to mean “that parties may not unilaterally force modifications or amendments to the
TLA.” [Doc. No. 26, 5]. When drawing reasonable inferences in the Plaintiff’s favor, this
language provides a plausible interpretation of the modification clause. As such, Defendant’s
allegedly heavy-handed tactics to force modification negotiations may violate the express terms
of the contract. Plaintiff also alleges that Defendant accused it of material breaches despite
evidence to the contrary. [See, e.g., Doc. No. 19-2, ¶ 43]. Specifically, Plaintiff claims that
Defendant’s “repeated notices of breach and attempted termination and forced modification of
the TLA [constitute] a breach of [Defendant’s] duties under that agreement.” [Doc. No. 13-2, ¶
48]. Because good faith requires that a party act with ordinary care and not prevent the other
party from receiving the benefits of the agreement, Plaintiff has alleged sufficient facts to state a

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plausible claim for breach of the implied good faith duty. Thus, as Plaintiff has alleged both (1) a
breach of an express term of the contract (e.g., Section 8.4) and (2) Defendant’s efforts to injure
Plaintiff’s rights to receive the benefits of the TLA, Plaintiff has easily satisfied its pleading
burden and stated a plausible cause of action for breach of contract.
Accordingly, Defendant’s motion to dismiss Count I of the Amended Complaint is denied.
II.

Unfair and Deceptive Trade Practices:

North Carolina General Statute 75-1.1 makes unlawful “unfair or deceptive acts or practices
and unfair or deceptive methods of competition in or affecting commerce.” N.C. Gen. Stat. § 751.1. In order to establish an actionable claim under this statute, a plaintiff must sufficiently
allege: “(1) an unfair or deceptive act or practice, (2) in or affecting commerce, and (3) which
proximately caused injury to plaintiffs.” Gray v. N.C. Ins. Underwriting Ass’n, 352 N.C. 61, 68,
529 S.E.2d 676, 681 (2000) (citations omitted).
Defendant asserts that Plaintiff’s claim should be dismissed because it failed to allege a
monetary injury. However, the Amended Complaint does allege monetary damages caused by
the diversion of resources to address Defendant’s accusations of breach and other contractual
issues, and through investment in the licensed technology itself. Specifically, Plaintiff alleges
that Defendant’s “outrageous and unfair and deceptive conduct has caused [Plaintiff] to expend
time and valuable resources in dealing with [Defendant]’s baseless assertions of breach. As a
result, [Plaintiff] has suffered damages.” (Am. Compl. ¶ 45). Moreover, Plaintiff’s Amended
Complaint further notes Plaintiff’s substantial investment in the TLA (e.g., $100,000 cash
payment, the interest proceeds on the $250,000 promissory note, and the costs incurred in
obtaining FDA approval)— will be lost if Defendant’s deceitful conduct is allowed to continue.

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(Id. at ¶ 45). Accordingly, Plaintiff has sufficiently stated a claim for unfair or deceptive trade
practices in violation of N.C. Gen. Stat. § 75-1.1.
IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss Counts I and III of
Plaintiff’s Amended Complaint is hereby DENIED.
Signed: November 21, 2013

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