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Demandforce, Inc. v. Patterson Dental Supply, Inc.

United States District Court, D. Minnesota

September 26, 2019

Demandforce, Inc., Sesame Communications, Inc., and Henry Schein One, LLC, Plaintiffs,
v.
Patterson Dental Supply, Inc., Defendant.

          MEMORANDUM AND ORDER

          PAUL A. MAGNUSON UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendant’s Motion to Dismiss Counts II through VI of the Amended Complaint. For the following reasons, the Motion is granted.

         BACKGROUND

         Defendant Patterson Dental Supply is a software company that develops and licenses a computerized practice management system to dental practices. This system, called Eaglesoft, allows dental practices to efficiently manage patient records, billing, and insurance reimbursement, among other tasks. (Am. Compl. (Docket No. 71) ¶¶ 26, 9.) Plaintiff Demandforce, Inc., is a wholly owned subsidiary of Plaintiff Sesame Communications, Inc. (Id. ¶ 3.) The two entities develop and license software to dental practices to allow the practice to automate its appointment reminders to patients. (Id. ¶ 2.) The Demandforce/Sesame software works in conjunction with the practice’s existing practice management software, such as EagleSoft. (Id. ¶ 24.) Because of this, Demandforce and Sesame enter into license agreements with the practice management software developer. Plaintiffs’ agreements with Patterson are called Token Agreements, because they provide Demandforce and Sesame with “tokens” that permit access to information in the practice’s Eaglesoft system database. (Id. ¶ 32; see also Lewis Decl. (Docket No. 20) Exs. C, D (Token Agreements between Plaintiffs and Patterson).)

         Plaintiff Henry Schein One, Inc. (“HS1”) is a joint venture between Sesame’s parent corporation and a subsidiary of Henry Schein, Inc. (Id. ¶ 4.) Henry Schein is a developer and licensor of practice management software to dental practices and is a direct competitor of Patterson. (Id. ¶ 5.) HS1 “combines the practice management software of Henry Schein and the marketing automation and customer communications software of Demandforce and Sesame into a single connected management system targeted to dental practices . . . .” (Id. ¶ 4.)

         The parties were engaged in negotiations regarding new Token Agreements when Patterson learned of the HS1 joint venture. (Id. ¶ 36.) The negotiations were unsuccessful, and shortly after the public announcement of HS1, Patterson terminated the Token Agreements with Demandforce and Sesame. (Id.) According to the terms of the Token Agreements, any party may terminate the agreements for any reason with 90 days’ written notice. (Lewis Decl. Ex. C ¶ 9(a).) Patterson’s termination notices were effective on October 31, 2018.

         Patterson then began to send notices to its customers who also used Demandforce and Sesame products. These notices stated that, after October 31, 2018, “any interface between Eaglesoft and [Plaintiffs’] products . . . will no longer be permitted.” (Am. Compl. ¶ 38; see also Lewis Decl. Ex. G.) Plaintiffs also contend that “Patterson further informed one or more customers that continued use of [Plaintiffs’] products by the customer after that date would be unlawful.” (Id.) Plaintiffs do not specify whether this “unlawful” statement is separate from the “no longer permitted” statement in the letters Patterson sent.

         According to Plaintiffs, they have attempted to reach a “commercially reasonable solution” to continue doing business with Patterson but have been unable to do so. (Id. ¶ 42.) Customers have stopped using Plaintiffs’ products “because of the fear Patterson has improperly and unlawfully sown in the marketplace.” (Id. ¶ 46.)

         Plaintiffs first brought suit in California, alleging various torts under California law and seeking a declaratory judgment regarding their and their customers’ rights. Patterson moved to dismiss and to transfer venue, and the California court transferred the case to Minnesota without addressing the merits of the motion to dismiss. Shortly thereafter, Plaintiffs amended their Complaint to assert tort claims under Minnesota and Delaware law. Specifically, Plaintiffs contend that Patterson’s conduct amounts to product disparagement under Minnesota law (Count II), trade libel under Delaware law (Count III), violation of the Minnesota Deceptive Trade Practices Act (Count IV) and Delaware Deceptive Trade Practices Act (Count V), and unfair competition under Delaware law (Count VI). Count I seeks a declaration “that [Plaintiffs’] actions and those of their dental practice customers who utilize Plaintiffs’ Products do not violate any of Patterson’s legal rights and that Plaintiffs’ customers may continue to utilize [Plaintiff’s] Products.” (Id. ¶ 66.) Patterson has moved to dismiss the tort claims but not the declaratory-judgment claim.

         DISCUSSION

         To survive a motion to dismiss under Rule 12(b)(6), a complaint need only “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, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Fed.R.Civ.P. 12(b)(6). A claim bears facial plausibility when it allows the Court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. When evaluating a motion to dismiss under Rule 12(b)(6), the Court must accept plausible factual allegations as true. Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 660 (8th Cir. 2012). But “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, ” are insufficient to support a claim. Iqbal, 556 U.S. at 678.

         Patterson argues that the parties’ Agreements allowed it to do what it did, and that Plaintiffs have failed to plead any facts to establish that its statements were false. In other words, Patterson contends that its statement is true-connection between Plaintiffs’ products and Eaglesoft would “no longer be permitted” after October 31, 2018, because, having terminated the Token Agreements, Plaintiffs’ products no longer had a license to access Eaglesoft. Plaintiffs do not dispute that a true statement cannot form the basis of any of Plaintiffs’ tort claims, whether under Minnesota law or Delaware law.

         Plaintiffs counter that whether a statement is true or false is a question that cannot be resolved on a motion to dismiss. But this is not a case where the Court must accept a plausible allegation as true. Rather, this is a case where the allegation is not plausible because of the other allegations in the pleadings and information in the documents “necessarily embraced by the pleadings.” Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (quotation omitted). Plaintiffs’ Amended Complaint references the parties’ Token Agreements, and thus those agreements are necessarily embraced by the pleadings.

         The pleadings and the Token Agreements establish that Patterson’s statements regarding unpermitted interface are true. Patterson terminated the parties’ Agreements, as the Agreements allowed it to do. And after the Agreements’ termination, Plaintiffs’ products were no longer allowed to interface with Eaglesoft.[1] ...


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