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Steady State Imaging, LLC v. General Electric Company

United States District Court, D. Minnesota

November 2, 2017

Steady State Imaging, LLC, Plaintiff,
v.
General Electric Company, Defendant.

          Devan V. Padmanabhan, Lisa B. Ellingson, and Paul J. Robbennolt, Winthrop & Weinstine, PA, counsel for plaintiff

          Marla Butler and Nicole S. Frank, Robins Kaplan LLP, counsel for defendant

          REPORT AND RECOMMENDATION

          KATHERINE MENENDEZ, UNITED STATES MAGISTRATE JUDGE.

         General 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.

         I. The Amended Complaint

         This 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.

         The License Agreement

         Using 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. ¶ 12.

         In 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.

         The Asset Purchase Agreement

         In 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.

         SSI 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.

         Paragraph 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.

         SSI 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.

         GE's Alleged Post-APA Promises

         After 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.

         In the 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 follows:

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).

         SSI's Claims

         SSI 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.

         In 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.

         In 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.

         Finally, 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.

         II. Discussion

         GE 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).

         Applying 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 ...


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