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Hess v. Biomet Inc.

United States District Court, N.D. Indiana, South Bend Division

February 16, 2017

CHARLES HESS, MARTY HIGGINS, ROBERT “GLEN” MCCORMICK, RONALD PAPA, FRANK SHERA and AL TORNQUIST Plaintiffs,
v.
BIOMET, INC. and ZIMMER BIOMET HOLDINGS, INC. Defendants.

          OPINION AND ORDER

          RUDY LOZANO, Judge.

         This matter is before the Court on Defendant Biomet, Inc., and Zimmer Biomet Holdings, Inc.'s Motion to Dismiss (DE #18), filed on May 26, 2016. For the reasons set forth below, Defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART. Counts II, III, V, and VI are DISMISSED. Counts I and IV remain pending.

         BACKGROUND

         Plaintiffs Charles Hess, Marty Higgins, Robert McCormick, Ronald Papa, Frank Shera and Al Tornquist (together, "Plaintiffs") were each successful sales representatives with the medical device company Zimmer Holdings Inc. ("Zimmer") by 1980. (DE #1, ¶14.) Defendant Biomet, Inc. ("Biomet") is a medical device company that competed with Zimmer. (Id.) Between 1980 and 1983, Biomet allegedly enticed Plaintiffs to leave Zimmer and join Biomet by offering them agreements that included a retirement-income program in the form of lifetime commissions on all products sold in their sales territories. (Id.) Upon Plaintiffs' retirements from Biomet, Biomet paid them commissions on products sold in their former territories. (Id., ¶¶16-17.) Plaintiffs recently discovered that those commission payments were based on some, but not all, Biomet products sold in those territories. (Id. ¶18.) In 2015, Biomet and Zimmer merged, and became Defendant Zimmer Biomet Holdings, Inc. ("Zimmer Biomet"). (Id., ¶19.) Since the merger, Zimmer Biomet has allegedly repudiated its obligations to Plaintiffs under the agreements. (Id.)

         The Complaint alleges six causes of action against Biomet and Zimmer Biomet (together, “Defendants”): (1) breach of contract for failing to pay Plaintiffs commissions on all Biomet products sold in their former territories; (2) breach of contract and implied covenant of good faith and fair dealing for spinning-off, re-branding, substituting and otherwise discontinuing Biomet products; (3) breach of contract and implied covenant of good faith and fair dealing against Zimmer Biomet for failing to pay Plaintiffs commissions on all products sold by Biomet or Zimmer Biomet in their former territories; (4) violations of Indiana Code sections 34-24-3-1 and 35-43-5-3 for knowingly or intentionally making false or misleading commission statements with the intent to underpay Plaintiffs; (5) theories of de facto merger, mere continuation, alter ego, and piercing the corporate veil; and (6) declaratory judgment. Defendants move to dismiss the Complaint in its entirety.

         DISCUSSION

         Facts

         Plaintiffs are former sales representatives of Zimmer. (DE #1, ¶14.) Between 1980 and 1983, Biomet offered each of Plaintiffs an exclusive distributorship agreement ("Distributorship Agreements") to leave Zimmer and work for Biomet. (Id.) The Distributorship Agreements included a promise of a retirement-income program in the form of lifetime commissions on all products sold in Plaintiffs' sales territories. (Id.) Plaintiffs accepted Biomet's offer, and their contributions were instrumental in Biomet's success in growing into a dominant player in the musculoskeletal healthcare industry. (See id., ¶15.) Between 1996 and 2005, Plaintiffs retired from Biomet. (Id., ¶16.) Upon retirement, Plaintiffs each signed agreements terminating their distributorships and acknowledging the survival and continuation of their retirement-income program established under the Distributorship Agreements, and its applicability to Biomet's successors and assigns ("Termination Agreements"). (Id.) The Distributorship Agreements and Termination Agreements (together, "Agreements") allegedly entitle Plaintiffs to be paid a retirement commission on all Biomet products sold in their former territories. (Id., ¶¶17, 37.)[1]

         Following Plaintiffs' retirement, Biomet paid Plaintiffs retirement commissions, and sent them semi-monthly payments along with statements purporting to show the commissions owed. (Id., ¶¶17, 42-46.) These statements originally set forth a single dollar amount showing the total commission payment; years later, the statements included some additional information. (Id.) Plaintiffs allege that they did not know, and could not tell from these statements, that the commission payments failed to pay them for all Biomet product sales from their former territories. (Id., ¶¶43, 44.) Plaintiffs relied on the accuracy and comprehensiveness of this information, believing that Biomet was honoring its obligation under the Agreements by properly calculating and paying their retirement commissions. (Id., ¶¶ 17, 40.) Plaintiffs “recently” discovered that Biomet had only been paying them commissions on its joint reconstructive products, rather than all of its products, and that Biomet allegedly had been concealing the underpayments through misleading and incomplete commission statements. (Id., ¶¶18, 39-41.)

         On June 24, 2015, Biomet and Zimmer merged, and became Zimmer Biomet. (Id., ¶58.) Zimmer Biomet holds itself out to the public as the combination of Zimmer and Biomet, and is controlled and directed by a management team drawn from senior executives from Zimmer and Biomet. (Id., ¶¶22, 58-78.) Post-merger, Biomet and Zimmer Biomet allegedly spun off, re-branded, or discontinued Biomet products in favor of substitute Zimmer or Zimmer Biomet products, thereby reducing the Biomet products on which commissions are paid. (Id., ¶21.) Plaintiffs believe they have only been paid commissions on a subset of Biomet's total product line, and no commissions on the Zimmer or Zimmer Biomet product lines. (Id., ¶48.)

         Motion to Dismiss Standard

         In evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must “accept all facts alleged in the complaint as true and draw all reasonable inferences in the light most favorable to the plaintiff.” Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010) (citation omitted). While a complaint is not required to contain detailed factual allegations, the plaintiff must allege facts that “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). “Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted). “[E]ven with the heightened pleading requirements of Iqbal and Twombly, the pleading requirements to survive a challenge to a motion to dismiss remain low.” Diedrich v. Ocwen Loan Servicing, LLC, 839 F.3d 583, 589 (7th Cir. 2016).

         Count I - Breach of Contract Claim

         Count I alleges that Defendants breached the Agreements by “fail[ing] to pay [Plaintiffs] a commission on all Biomet products sold in their respective territories as required by the terms of the retirement-income program.” (DE #1, ¶96.) To recover for breach of contract under Indiana law, a plaintiff must prove that “(1) a contract existed, (2) the defendant breached the contract, and (3) the plaintiff suffered damage as a result of the defendant's breach.” Duncan v. Greater Brownsburg Chamber of Commerce, Inc., 967 N.E.2d 55, 57 (Ind.Ct.App. 2012) (citation omitted). Count I alleges that: (1) Plaintiffs and Defendants were parties to the Agreements, which provided for payment of lifetime commissions on all Biomet products sold in the relevant territories (id., ¶89-92); (2) Defendants violated the Agreements by failing to pay Plaintiffs commissions on all Biomet products sold in those territories (id., ¶96); and (3) as a result of those violations, Plaintiffs suffered damages in the amount of unpaid commissions (id., ¶¶101-105). Accepting the facts as alleged in the Complaint as true, and drawing all reasonable inferences in Plaintiffs' favor, Count I sufficiently alleges facts stating a plausible breach of contract claim.

         Defendants do not dispute whether Count I has facial plausibility. Rather, they contend that Count I must be dismissed because Plaintiffs allegedly conceded that Biomet had honored its obligations under the Agreements in a letter dated July 20, 2015, from Plaintiffs' counsel to Zimmer Biomet (“July 2015 Letter”). The July 2015 Letter was not attached as an exhibit to the Complaint. Nonetheless, Defendants maintain that the Court may consider the July 2015 Letter because the Complaint references and quotes from the letter. Defendants filed a copy of the July 2015 Letter as an exhibit to their motion to dismiss. (DE #19-1.) “In general, a court may only consider the plaintiff's complaint when ruling on a Rule 12(b)(6) motion.” Burke v. 401 N. Wabash Venture, LLC, 714 F.3d 501, 505 (7th Cir. 2013) (citation omitted). However, “documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim.” Id. (citations omitted). The court may consider such documents in ruling on a motion to dismiss without converting the motion into a motion for summary judgment. Id.

         While the Complaint refers to and quotes from the July 2015 Letter (DE #1, ¶¶52-53), it does not appear to be central to Plaintiffs' claims. The Complaint alleges that, prior to the merger, Biomet proposed buyout offers to Plaintiffs in return for terminating their Agreements. (Id., ¶¶39, 50.) Plaintiffs rejected these offers, and hired counsel to negotiate a compromise with Defendants. (Id., ¶52.) Plaintiffs' counsel sent the July 2015 Letter to Zimmer Biomet, noting Zimmer Biomet's continuing obligation to pay Plaintiff the amounts due them under the Agreements, and proposed potential resolutions to the parties' conflicting positions. (Id.) In response, Zimmer Biomet declined further buyout negotiations and maintained that the Agreements do not extend to non-Biomet products. (Id., ¶54.) The Complaint references the July 2015 Letter and other correspondence between the parties to “establish[] that a current, justiciable dispute exists between [Plaintiffs], Biomet, and Zimmer Biomet regarding their respective rights and obligations under the Agreements.” (Id., ¶57.)

         Even if the July 2015 Letter is central to Plaintiffs' claims, Plaintiffs argue that the July 2015 Letter, which is marked “Offer of Compromise and Settlement pursuant to Rule 408 of the Rules of Evidence, ” is inadmissible because it was prepared as part of settlement discussions with Defendants. Rule 408 provides that evidence regarding “a statement made during compromise negotiations about the claim” “is not admissible - on behalf of any party - either to prove or disprove the validity or amount of a disputed claim.” Fed.R.Evid. 408; see United States v. Dish Network, L.L.C., No. 09-3073, 2015 WL 9164665, at *2 (C.D. Ill.Dec. 16, 2015) (“Rule 408 promotes settlement by encouraging frank discussions during settlements negotiations without fear that the statements would be used against the party later during the proceeding.”). Defendants contend that Rule 408 does not apply because the July 2015 Letter was merely a response to Biomet's proposed buyout of future obligations under the Agreements. They maintain that no actionable dispute existed when the July 2015 Letter was written and no offer of compromise was made. Defendants also insist that Plaintiffs “opened the door” for the Court's consideration of the July 2015 Letter by pleading its existence and quoting it in the Complaint. They rely upon case law addressing motions for summary judgment to assert that “[w]hen a party opens the door to evidence that would be otherwise inadmissible, that party cannot complain on appeal about the admission of that evidence. And when a party puts evidence at issue, that party must accept the consequence[s] of opening the door to that evidence.” United States v. Dish Network, L.L.C., 75 F.Supp.3d 942, 971 (C.D. Ill. 2014), vacated in part on other grounds on recons., 80 F.Supp.3d 917 (C.D. Ill. 2015) (quoting Estate of Escobedo v. Martin, 702 F.3d 388, 400 (7th Cir. 2012) (citations omitted)) (rejecting argument that settlement material was inadmissible under Rule 408 where arguing party had cited the material first).

         “Rule 408 is an evidentiary rule, which is best addressed in context of admissibility of evidence at trial.” PTR, Inc. v. Forsythe Racing, Inc., No. 08 C 5517, 2009 WL 1606970, at *4 (N.D. Ill. June 9, 2009) (denying motion to strike complaint allegations based on Rule 408 as premature, and allowing defendants to file motion in limine if case is presented to jury); see Brandy v. Maxim Healthcare Servs., Inc., No. 2:12 CV 192, 2012 WL 5268365, at *2 (N.D. Ind. Oct. 23, 2012) (denying motion to strike pleading based on Rule 408 because “it is too early to determine what evidence would be used and whether it would be barred by Rule 408”). The Court finds that whether Rule 408 applies to the July 2015 Letter is premature at this stage of the litigation. See Abercrombie & Fitch Co. v. Fed. Ins. Co., No. 2:06-CV-831, 2008 WL 656029, at *5 (S.D. Ohio Mar. 11, 2008) (denying motion to dismiss, explaining “whether Rule 408 applies to [plaintiff's] claim cannot be determined at the pleading stage of this case”). The possibility that Rule 408 precludes Defendants from offering evidence to disprove Count I is inappropriate for the Court to consider in the context ...


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