United States District Court, D. Minnesota
V. Padmanabhan, Lisa B. Ellingson, and Paul J. Robbennolt,
Winthrop & Weinstine, PA, counsel for plaintiff
Butler and Nicole S. Frank, Robins Kaplan LLP, counsel for
REPORT AND RECOMMENDATION
KATHERINE MENENDEZ, UNITED STATES MAGISTRATE JUDGE.
Electric Company (“GE”) moves to dismiss three of
the four claims asserted in Steady State Imaging's
(“SSI”) Amended Complaint. Def.'s Mot., ECF
No. 24. Based on the parties' written arguments, the
arguments of counsel at the hearing, and on the entire
record, the Court recommends that GE's motion be granted
in part and denied in part.
The Amended Complaint
case involves disagreements over a transaction in which GE
purchased SSI's exclusive rights to a new MRI technology
originally developed by the University of Minnesota.
Generally speaking, SSI takes the position that GE was
required to do more to commercialize the MRI technology,
which would have led to additional payments to SSI under the
parties' agreement. SSI also takes the position that
after the parties entered a written asset purchase agreement,
GE promised SSI that GE would commercialize the technology,
which caused SSI to make additional investments to assist in
that commercialization. GE contends that the asset purchase
agreement's plain language forecloses any claim that GE
was required to do more to commercialize the new MRI
technology. GE further argues that SSI's allegations
concerning oral promises are implausible.
research grants in 1998 and 2003 from the National Institutes
of Health, a team at the University of Minnesota developed a
new MRI technology known as SWIFT. Am. Compl. ¶¶
6-13. The University obtained several patents and filed a
number of patent applications related to SWIFT. Id.
December 2006, as part of its focus on advancing the
development of MRI technologies, SSI entered an Exclusive
Patent License Agreement with the University. This License
Agreement gave SSI the exclusive right to commercialize SWIFT
technology. Am. Compl. ¶¶ 15-17. SSI also obtained
the power to sublicense or assign its rights under the
License Agreement. Id. ¶ 18. The License
Agreement required SSI to “use its commercially
reasonable efforts, consistent with sound and reasonable
business practices and judgment, to commercialize the [SWIFT
technology] as soon as practicable and to maximize sales
thereof.” Id. ¶ 19. For the next several
years, SSI “used its best efforts to develop and
commercialize SWIFT.” See Id. ¶ 20.
Asset Purchase Agreement
April 2011, GE and SSI “entered into an Asset Purchase
Agreement (the ‘APA'), pursuant to which GE
purchased substantially all of the assets of SSI.” Am.
Compl. ¶ 21. “SSI assigned to GE, and GE assumed,
all of SSI's rights and liabilities under the Patent
License Agreement.” Id. ¶ 21.
asserts that as a result of GE's assumption of the
License Agreement, “GE was required to ‘use its
commercially reasonable efforts, consistent with sound and
reasonable business practices and judgment, to commercialize
the [SWIFT technology] as soon as practicable and to maximize
sales thereof.” Am. Compl. ¶ 23. SSI also alleges
that GE was required to pursue a research and development
program (referred to as an “ATD Program”) and a
marketing program (referred to as an “NPI
Program”) for the SWIFT technology. See Id.
¶¶ 24-25 (describing the ATD and NPI Programs).
GE's commercialization of SWIFT technology is
particularly important to SSI because the APA provides that
GE would make additional payments to SSI (in excess of the
significant purchase price) if GE sells certain products that
use the SWIFT technology. Id. ¶ 26.
2.2 of the APA addresses GE's obligations to: (1)
commercialize SWIFT technology; (2) develop an ATD Program;
and (3) develop an NPI Program. In relevant part, Paragraph
2.2 provides that:
[GE] shall have no obligation to pursue the commercialization
of any Additional Payment Product or use any specific level
of efforts if [GE] chooses to commercialize any Additional
Payment Product. Notwithstanding the preceding sentence, (1)
following the Closing, [GE] shall create, in accordance with
its standard policies and procedures, an ATD Program with
respect to the SWIFT Technology and (2) if, following the
completion of the ATD Program, [GE] determines in its sole
discretion than an NPI Program is appropriate for any product
using the SWIFT Technology, [GE] shall create, in accordance
with its standard policies and procedures, an NPI Program
with respect to such product.
APA ¶ 2.2(a)(iv)(D), ECF No. 28; see also Am.
Compl. ¶¶ 24-25. An “Additional Payment
Product” is defined in the APA to include SWIFT-based
MRI scanners and certain conventional MRI scanners
incorporating SWIFT-based applications. APA ¶ 9.1.
alleges that “GE did not, and has not to date, created
an ATD Program with respect to the SWIFT Technology.”
Am. Compl. ¶ 28. Instead, “GE prioritized is own
internally-developed ‘Silent Scan' technology over
SWIFT” even though “SWIFT has many advantages
over GE's Silent Scan technology.” Id.
¶¶ 29, 31. SSI asserts that “GE had ulterior
motives in failing to commercialize the SWIFT Technology or
create an ATD Program with respect to the SWIFT
Technology.” Id. ¶ 32. Specifically, GE
favored commercialization of Silent Scan technology “to
avoid making additional payments to SSI under the APA.”
Id. ¶ 33. SSI further alleges that GE acted
dishonestly and in bad faith by favoring its Silent Scan
technology, failing to commercialize SWIFT, and failing to
create an ATD Program. Id. ¶ 34.
Alleged Post-APA Promises
the parties executed the APA in April 2011, “SSI
repeatedly asked GE for updates on its commercialization
efforts and asked GE to commercialize the SWIFT
technology.” Am. Compl. ¶ 35. In response,
“GE repeatedly promised SSI that GE would commercialize
the SWIFT Technology.” Id. ¶ 36.
“For example, in September 2014, Jason Polzin and
Baldev Ahluwalia of GE promised to Danny Cunagin of SSI that
GE would commercialize the SWIFT Technology.”
Id. ¶ 37. “In exchange for GE's
promises to commercialize the SWIFT Technology, SSI made
investments to assist with that commercialization and
refrained from taking action to enforce the APA or to
reacquire rights to the SWIFT Technology.” Id.
¶ 38. Further, SSI states that by making these promises
“GE intended to induce” SSI's reliance on
them. Id. ¶ 39. And finally, SSI asserts that
it “relied on GE's promises to its detriment when
it decided to make investments to assist with SWIFT
commercialization and refrain from taking action to enforce
the APA or to reacquire rights to the SWIFT
Technology.” Id. ¶ 40.
context of GE's motion to dismiss, these alleged post-APA
promises must be considered against the backdrop of a
provision of the APA that requires modifications of the
agreement to be in writing. This no-oral-modification
language appears in an integration clause, which provides as
This Agreement and the Exhibits and Schedules referred to
herein and the documents delivered pursuant hereto contain
the entire understanding of the parties hereto with regard to
the subject matter contained herein or therein, and supersede
all prior agreements, understandings or letters of intent
between or among any of the parties hereto, including the
Letter of Intent, the Exclusivity Agreement and the
Confidentiality Agreement. This Agreement shall not be
amended, modified or supplemented except by a
written instrument signed by an authorized representative of
each of the parties hereto.
APA ¶ 8.7 (emphasis added).
raises its claims in four separate “Counts” in
its Amended Complaint. In Count I, SSI claims that GE
breached the APA by failing to use its commercially
reasonable efforts to commercialize the SWIFT Technology and
to maximize sales of products incorporating the technology.
Am. Compl. ¶ 44. SSI also alleges that GE breached the
APA by failing to create an ATD Program with respect to the
SWIFT Technology. Id. ¶ 45. GE has not moved to
dismiss this claim for breach of contract.
Count II, SSI asserts that GE breached an implied covenant of
good faith and fair dealing by failing to use its
commercially reasonable efforts to commercialize the SWIFT
Technology. Am. Compl. ¶ 49. Further, SSI asserts that
“GE also breached the implied covenant of good faith
and fair dealing by failing to exercise its discretion to
determine whether an NPI program was warranted with respect
to the SWIFT Technology in a reasonable manner.”
Id. ¶ 50.
Count III, SSI alleges that when GE made promises to it after
the parties executed the APA, they formed a new oral
contract. Am Compl. ¶ 53. “In exchange for
GE's promises to commercialize the SWIFT Technology, SSI
made investments to assist with that commercialization and
refrained from taking action to enforce the APA or reacquire
rights to the SWIFT Technology.” Id. ¶
54. SSI alleges that GE breached this second agreement by
failing to commercialize the SWIFT Technology, causing SSI to
suffer damages. Id. ¶¶ 56-57.
based on the same allegations comprising Count III, SSI
asserts a claim for promissory estoppel. Am. Compl.
¶¶ 59-63. SSI alleges that: GE intended to induce
SSI to rely on its post-APA promises to commercialize SWIFT;
SSI reasonably relied on those promises when it made
investments to assist with the commercialization and
refrained from enforcing the APA or reacquiring rights to the
SWIFT Technology; and GE did not comply with its promises.
Id. ¶¶ 60-61.
asserts that under Federal Rule of Civil Procedure 12(b)(6),
SSI has failed to state a claim in Counts II, III, and IV of
the Amended Complaint. To survive a motion to dismiss 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.'”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594
(8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 668 (2009)). “A claim has facial plausibility when
the plaintiff [has pleaded] factual content that allows the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556
U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 556 (2007)). “[L]abels and conclusions or a
formulaic recitation of the elements of a cause of
action” are not sufficient to state a claim.
Id. (citation and quotation marks omitted). Instead,
the Court “must accept [the] plaintiff's specific
factual allegations as true but [need] not . . . accept a
plaintiff's legal conclusions.” Brown v.
Medtronic, Inc., 628 F.3d 451, 459 (8th Cir. 2010)
(citing Twombly, 550 U.S. at 556).
these standards, the Court concludes that SSI has failed to
state a claim for breach of the implied covenant of good
faith and fair dealing and Count II of the Amended Complaint
should be dismissed. The Court also concludes that SSI has
sufficiently alleged facts giving rise to a claim for breach
of an oral contract formed after the parties entered the
Asset Purchase Agreement. And finally, the Court concludes
that SSI has adequately pled an alternative claim for
promissory estoppel based on the same facts giving rise to
its breach of an ...