Osteostrong Franchising, LLC v. Richter

OSTEOSTRONG FRANCHISING, LLC, Plaintiff, v. ROLAND RICHTER, SHEILA NIXON, JDAP, INC., and DANCINGBONES LLC, Defendants.

Case No. 1:18-cv-1184-KWR-JFR

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

August 10, 2020

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court upon Defendants' Motion for Summary Judgment on Plaintiff OsteoStrong Franchising, LLC's (OsteoStrong) claims, filed on March 6, 2020 (Doc. 159). Having reviewed the parties' pleadings and the applicable law, the Court finds that Defendants' motion is well-taken and, therefore, is GRANTED.

BACKGROUND

This case arises from a potential franchising relationship between the parties that soured, after which Defendants ultimately opened a competing business. OsteoStrong alleges, among other things, that Defendants (1) misappropriated proprietary information and trade secrets to launch their own business (2) advertised using OsteoStrong's mark and manipulated internet searches such that Defendants' business address appeared in place of OsteoStrong's.

OsteoStrong filed this case alleging violations of both federal and New Mexico state law. OsteoStrong's Complaint asserts the following claims:

Count I: Misappropriation (Pursuant to the Defend Trade Secrets Act of 2016) Count II: Misappropriation (Under the New Mexico Uniform Trade Secrets Act)

Count III: Breach of Contract

Count IV: Unfair Competition (15 U.S.C. 1125); and

Count V: Trademark Infringement (15 U.S.C. 1114 (1)).

Defendants moved for summary judgment on all claims asserted by OsteoStrong. Doc. 159.

LEGAL STANDARD

A motion for summary judgment is appropriate when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). As the Tenth Circuit has explained, "mere assertions and conjecture are not enough to survive summary judgment." York v. AT&T, 95 F.3d 948, 955 (10th Cir. 1996). To avoid summary judgment, a party "must produce specific facts showing that there remains a genuine issue for trial and evidence significantly probative as to any [material] fact claimed to be disputed." Branson v. Price River Coal Co., 853 F.2d 768, 771-72 (10th Cir. 1988) (quotation marks and citations omitted).

"A fact is material if, under the governing law, it could have an effect on the outcome of the lawsuit. A dispute over a material fact is genuine if a rational jury could find in favor of the nonmoving party on the evidence presented." Dewitt v. Sw. Bell Tel. Co., 845 F.3d 1299, 1306 (10th Cir. 2017) (quotation marks and citation omitted).). A court is to view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Shero v. City of Grove, 510 F.3d 1196, 1200 (10th Cir. 2007). A court cannot weigh the evidenceand determine the truth of the matter, but instead determines whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 243 (1986).

"[A] complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial," and thus, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

UNDISPUTED FACTS¹

OsteoStrong's Response to Defendants' Motion for Summary Judgment is not in compliance with Local Rule 56.1(b) which mandates the following:

The Response must contain a concise statement of the material facts cited by the movant as to which the non-movant contends a genuine issue does exist. Each fact in dispute must be numbered, must refer with particularity to those portions of the record upon which the non-movant relies, and must state the number of the movant's fact that is disputed. All material facts set forth in the Memorandum will be deemed undisputed unless specifically controverted. The Response may set forth additional facts other than those which respond to the Memorandum which the non-movant contends are material to the resolution of the motion. Each additional fact must be lettered and must refer with particularity to those portions of the record upon which the non-movant relies. (emphasis added).

Factual assertions not specifically controverted or disputed are deemed admitted. To the extent a party does not cite to the record to support a fact or dispute a fact, the Court disregards that factual assertion or dispute. Fed. R. Civ. P. 56(c)(1)(A); D.N.M.LR-Civ. 56-1(b) ("All material facts set forth...will be deemed undisputed unless specifically controverted."); Fed. R. Civ. P. 56(e)(2). The court need consider only the cited materials, but it may consider other materials in the record. Fed. R. Civ. P. 56 (c)(3).

Defendants' Motion for Summary Judgement provides 85 material facts (DMF). OsteoStrong's Response does not contain a single, numbered fact and does not specifically referto the record at all in reference to Defendants' cited material facts. Rather, OsteoStrong merely states that "The facts as recited by Defendants are disputed." Doc. 166 at 2. Given OsteoStrong's failure to supply an adequate response brief, the Court accepts Defendants' facts properly supported by the record as true. See Coleman v. Blue Cross Blue Shield of Kansas, Inc., 287 F. App'x 631, 635 (10th Cir. 2008).² The Court then views the facts in the light most favorable to the plaintiff, as the nonmovant. Id.

Defendants' Initial Interaction with OsteoStrong

Around December 22, 2015, Defendant Sheila Nixon (Nixon) visited an OsteoStrong Albuquerque location as a customer for a free introductory session. During her introductory session she was informed of a business opportunity, after which she began communicating with OsteoStrong's regional developers, Sean and Charla Simpson (the Simpsons), regarding potential franchising. Following their initial discussion, Nixon was asked to execute a non-disclosure agreement (NDA) in which she agreed not to share confidential information disclosed to her. Nixon was particularly interested in OsteoStrong's BioDensity equipment, used for "osteogenic loading."³ BioDensity is manufactured and sold by Performance Health Systems, an unrelated third-party entity.

Nixon and her husband, Defendant Roland Richter (Richter), owned another business, Joe's Dining, a Santa Fe restaurant. In May 2016, Nixon wrote in the restaurant newsletter⁴ about the process of osteogenic loading, stating "I've been so impressed with this biodensity technology that I've decided to bring an OsteoStrong center to Santa Feans. I will have more informationsoon." Subsequently, in June 2016, Nixon issued a statement in the newsletter that, "Sheila [Nixon] will be following her heart (and her head!) by opening a wellness center, OsteoStrong Santa Fe."

During the course of their business discussions, OsteoStrong informed Nixon that it would no longer be using BioDensity equipment, but would switch to its own product, called Spectrum, despite the fact that it was prohibited from marketing or selling Spectrum equipment at that time by a June 15, 2016 restraining order, effective until August 5, 2016. Eventually, Nixon became frustrated with OsteoStrong's slow process and response times, which she expressed to the Simpsons via email on June 16, 2016. The following day, Nixon was informed that the process would be moving more smoothly in a forwarded email from OsteoStrong's CEO, Kyle Zagrodsky. Despite the change from BioDensity to Spectrum machinery, Defendants submitted a franchise application on July 5, 2016. Ultimately, OsteoStrong rejected Defendants' application for their failure to attest to a merger clause, which Defendants declined to sign due to oral representations from the company's representatives that did not align with the information provided in the application.

Defendants Open a Competing Business

Approximately six months after OsteoStrong rejected Defendants' application, Defendants opened DancingBones, LLC (DancingBones), an independent business in Santa Fe utilizing BioDensity equipment purchased from Performance Health Systems. Defendants selected the location based on its proximity to their restaurant. There was no OsteoStrong location in Santa Fe at the time, until Dr. Lawrence Canfield opened one in June 2018. Dr. Canfield was aware of DancingBones when he opened his facility. Following the opening of DancingBones, Defendants were involved in litigation with the Simpsons, in which the Simpsons advanced claims for misappropriation of twelve categories of confidential, proprietary, and trade secret information,the same twelve categories of misappropriation asserted by OsteoStrong in the instant action⁵. The twelve categories include:

1. Confidential scripts to use when talking to prospects and members and the psychology behind the scripts;

2. Confidential pro forma for the proposed investment opportunity either in Santa Fe or Albuquerque which detailed every form of cash inflow and outflow based on previous operations of OsteoStrong facilities, which showed the exact cost of investment and an accurate method for calculating return on investment;

3. A confidential Operating Agreement, Membership Restriction and Redemption Agreement, and Member Subscription Agreement form;

4. Assistance in prospecting events for lead generation in Santa Fe, including confidential strategies on how to successfully run these events

5. Methodologies for site selection, demographics of potential clientele based on confidential numbers at OsteoStrong's other facilities;

6. Visits by the OsteoStrong Regional Developer team with Defendants to evaluate two potential spaces and discuss the

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