Guidance Endodontics LLC v. Dentsply Int'l Inc. A Del. Bus. Corp.

708 F.Supp.2d 1209

GUIDANCE ENDODONTICS, LLC, a New Mexico Limited Liability Company, Plaintiff,

v.DENTSPLY INTERNATIONAL, INC. a Delaware Business Corporation, and Tulsa Dental Products, LLC, a Delaware Limited Liability Company, Defendants.andDentsply International, Inc. and Tulsa Dental Products, LLC, Counter Plaintiffs,

v.Guidance Endodontics, LLC and Dr. Charles Goodis, Counter Defendants.

No. CIV 08-1101 JB/RLP.

United States District Court D. New Mexico.

March 23, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Kyle C. Bisceglie, Renee M. Zaystev, Olshan, Grundam, Frome, Rosenweiz & Woldosky, LLP, New York, NY, John J. Kelly, Donald A. DeCandia, Ryan Flynn, Modrall, Sperling, Roehl, Harris & Sisk, P.A. Albuquerque, NM, for Plaintiff and Counterdefendants.

Howard M. Radzely, W. Brad Nes, Morgan Lewis & Bockius LLP, Washington, D.C., R. Ted Cruz, Morgan Lewis & Bockius LLP, Houston, TX, Brian M. Addison, Vice President, Secretary, and General Counsel Dentsply International, Inc. York, PA, Thomas P. Gulley, Rebecca Avitia, Lewis and Roca LLP, Albuquerque, NM, for Defendants and Counterplaintiffs.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on Plaintiff Guidance Endodontics, LLC and Counterclaim Defendant Charles J. Goodis' Motion for Summary Judgment and Supporting Memorandum, filed July 31, 2009 (Doc. 226). The Court held a hearing on September 1, 2009. The primary issues are whether the Court will grant Plaintiff/Counterdefendant Guidance Endodontics, LLC's and Counterdefendant Charles Goodis' motion for summary judgment as to Defendants Dentsply International, Inc. and Tulsa Dental Products, LLC's counterclaims of: (i) breach of the Manufacturing and Supply Agreement; (ii) breach of implied covenant of good faith and fair dealing; (iii) false advertising in violation of § 43 of the Lanham Act; (iv) trademark infringement in violation of 15 U.S.C. § 1114; (v) common-law unfair competition; (vi) violation of the New Mexico Unfair Practices Act (“New Mexico UPA”); (vii) unlawful misappropriation of the Defendants' trade values; (viii) fraudulent inducement; (ix) punitive damages; (x) declaratory judgment; and (xi) rescission and/or partial rescission. The Court grants in part and denies in part the motion. The Court will rule as follows: (i) grants the motion as to Count I for breach of contract insofar as it alleges breach of Section 4.7 of the Supply Agreement and otherwise denies as to Count I; (ii) grants the motion as to Count II for breach of the implied covenant of good faith and fair dealing; (iii) grants the motion as to the first four alleged instances of false advertising, but denies the motion as to the fifth and sixth instance of false advertising alleged in Count III; (iv) denies the motion as to the trademark infringement alleged in Count V; (v) denies the motion as to Count VI-common-law unfair competition-with respect to the Defendants' false-advertising ¹ and trademark-infringement grounds, but grants the motion as to the Defendants' trademark-dilution ground for unfair competition; (vi) grants the motion as to the Defendants' New Mexico UPA claim because the Defendants lack standing to bring such claim; (vii) denies the motion as to the Defendants' claim of unlawful misappropriation in Count VIII; (viii) grants the motion as to the Defendants' Count X fraudulent-inducement claims based on the conduct alleged in paragraphs 18-20 of the Counterclaims, but denies the motion as to the conduct alleged in paragraphs 20a-20c; (ix) grants the motion insofar as it seeks a declaration that the Defendants have no obligation to supply obturators, but denies the motion insofar as it seeks a declaration that the Defendants have no obligations at all under the Supply Agreement; and (x) grants the motion as to the Defendants' request for partial rescission, but denies the motion as to the Defendants' request for rescission.

FACTUAL BACKGROUND

For the purpose of this motion, the facts are largely undisputed. See Dentsply/TDP's Response to G/G's Motion for Summary Judgment and Supporting Memorandum at 2, filed August 17, 2009 (Doc. 251)(“Response”); Plaintiff Guidance Endodontics, LLC and Counterclaim Defendant Charles J. Goodis' Reply Brief in Support of Motion for Summary Judgment at 1-2, filed August 31, 2009 (Doc. 282)(“Reply”). This case concerns a suit that Guidance, a small endodontic-equipment company, has brought against the Defendants, who are both Guidance's rivals and its suppliers. More background on the lawsuit generally is set forth in the Court's earlier opinion. See Guidance Endodontics, LLC v. Dentsply Intern., Inc., 633 F.Supp.2d 1257, 1260-65 (D.N.M.2008)(Browning, J.).

The Defendants are manufacturers and suppliers of a variety of dental/endodontic products that compete with Guidance's products, including endodontic obturators, files, and ovens. See Verified Complaint and Demand for Jury Trial ¶ 32, at 7, filed November 21, 2008 (Doc. 1) (“Complaint”). ² Dentsply holds itself out as “the world's largest designer, developer, manufacturer and marketer of a broad range of products for the dental market,” and has over $2.3 billion in sales annually. Complaint ¶¶ 30, 34, at 7. The Defendants have a large share of the United States' NiTi ³ rotary file and obturator markets, and Guidance is aware of this fact. See Affidavit of James G. Mosch ¶¶ 1-4, at 1-2, filed August 17, 2009 (Doc. 251-16)(“Mosch Aff.”); Complaint ¶ 34, at 7.

1. The Obturator Market.

An obturator is a device used to fill the root canal with gutta percha ⁴ after the canal has been drilled, cleaned, and shaped. See Declaration of Charles J. Goodis in Support of His and Plaintiff's Motion for Summary Judgment ¶ 5, at 2, filed July 31, 2009 (executed July 31, 2009)(Doc. 227) (“Goodis Dec”). Only endodontists and dentists use obturators. See id. There are two categories of obturators: (i) ones that are to be used “cold” and (ii) ones that must be heated-in an endodontic oven-before use in the patient's mouth. See id. Guidance uses the trademark “OneFill” in connection with its obturators, as Section 4.7 of its Supply Agreement with the Defendants permits it to do. See Declaration of Kyle C. Bisceglie in Support of Plaintiffs and Counterclaim Defendant's Motion for Summary Judgment ¶ 7, at 2 & Exhibit 5, filed July 31, 2009 (executed July 29, 2009)(Doc. 228) (“Bisceglie Dec.”). Guidance's OneFill obturators are ones that must be heated before use. See Goodis Dec. ¶ 6, at 2.

The Defendants, on the other hand, have a brand of obturator called ThermaFil. See id. They only advertise, market and sell it to dentists, dental schools, and other professions who perform endodontic procedures-not to the general public. See Motion at 2. Two of the Defendants' other competitors, Coltene/Whaledent, Inc. and J.S. Dental Manufacturing, Inc., market obturators under the trademarked names “SuccessFil” and “Quick-Fill,” respectively. See Bisceglie Dec. ¶ 2-6, at 1-2 & Exhibits 1-5; Motion at 3; Goodis Dec. ¶ 9, at 3.

2. The Supply Agreement.

Guidance and Goodis contend that, on or about July 29, 2008, Guidance and the Defendants entered into a Manufacturing and Supply Agreement (the “Supply Agreement”). Motion at 3; Bisceglie Dec. ¶ 7, at 2 & Exhibit 5. The Defendants dispute this allegation, arguing that Guidance and Goodis misstate facts about the Supply Agreement. See Response at 2. The Defendants maintain that the parties entered into the agreement on August 11, 2008, when Jim Mosch affixed his signature. See Response at 2 & Exhibit A. Guidance also contends that, pursuant to that agreement, the Defendants agreed to manufacture all of Guidance's proprietary endodontic products, and Guidance agreed to purchase all of its requirements for such products from TDP, on an exclusive basis. See Bisceglie Dec. Exhibit ¶¶ 2.1, 2.2, at 3 (“Supply Agreement”); Motion at 3. The Defendants contend that they did not agree to manufacture “all” of Guidance's endodontic products, but only those listed in Exhibit 1 to the Supply Agreement (Guidance Files and Guidance Obturators). See Response at 2.

Section 4.5 of the Supply Agreement requires TDP to manufacture and provide endodontic files or obturators, which are improvements or successor products of similar design to the Guidance Files or Guidance Obturator, as those terms are defined in the Supply Agreement, as long as Guidance presents product specifications to TDP for such products. See Supply Agreement ¶ 4.5, at 6. Guidance is also obliged under Section 4.5 to “indemnify, defend, and hold harmless TDP for all claims, damages and costs arising from any claim that such file or obturator [manufactured pursuant to Section 4.5] infringes a third party's rights,” provided that (i) TDP advises Guidance that it reasonably believes there is a material risk that a third party's rights may be infringed, and (ii) a third party asserts a claim against TDP. See Supply Agreement ¶ 4.5, at 6; Motion at 3-4. As of the filing of Guidance's motion, no third party had asserted such a claim against Guidance or TDP.

Section 12.8 of that Supply Agreement provides:

Each of the parties acknowledges and agrees that in entering into this Agreement it does not rely upon and shall have no remedy in respect to any statement, representation, warranty or undertaking (whether negligently or innocently made) of any person (whether a party to this Agreement or not) other than as expressly set out in this Agreement.

Supply Agreement ¶ 12.8, at 15. See Motion at 4.

The Defendants allege, with respect to their claim of fraud, that Guidance and Goodis represented to them that, if the Supply Agreement were consummated, Guidance “would not attempt to trade off the reputation, goodwill, intangible trade values, and standing of Dentsply/TDP in the dental community in marketing and selling the Products.” Counterclaims ¶ 18,...