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

Background

Patterson Dental Supply develops and licenses Eaglesoft, a dental-practice management system. Demandforce and Sesame Communications develop software that automates appointment reminders and works with practice-management software such as Eaglesoft. Their agreements with Patterson, called Token Agreements, provided tokens allowing access to information in Eaglesoft’s database. Henry Schein One was described as a joint venture combining Henry Schein’s practice-management software with Demandforce and Sesame’s marketing and customer-communications software.

While the parties were negotiating new Token Agreements, Patterson learned about the Henry Schein One joint venture. The negotiations failed, and Patterson terminated its Token Agreements with Demandforce and Sesame. The agreements allowed either party to terminate them for any reason with 90 days’ written notice. Patterson’s terminations became effective October 31, 2018.

Patterson then notified customers who used both Eaglesoft and the plaintiffs’ products that, after October 31, 2018, the interface between the products would no longer be permitted. The plaintiffs also alleged that an unidentified Patterson employee told one or more unidentified customers that continued use of the plaintiffs’ products would be unlawful. The plaintiffs alleged that customers stopped using their products because of fear created by Patterson’s statements.

The plaintiffs’ amended complaint asserted product disparagement under Minnesota law, trade libel under Delaware law, violations of the Minnesota and Delaware Deceptive Trade Practices Acts, and unfair competition under Delaware law. These claims were Counts II through VI. Count I sought a declaration about whether the plaintiffs and their customers could continue using the plaintiffs’ products. Patterson moved to dismiss Counts II through VI, but not Count I.

Court’s Analysis

The court applied Rule 12(b)(6), which permits dismissal when a complaint does not allege enough facts to make a legally viable claim. In considering that motion, the court generally accepts plausible factual allegations as true, but it may consider documents that the complaint necessarily relies on, including the Token Agreements here.

Patterson argued that the Token Agreements authorized its conduct and that the plaintiffs had not alleged that Patterson’s statements were false. The plaintiffs did not dispute that a true statement could not support their tort claims.

The court concluded that the statements in Patterson’s customer letters—that the interface with Eaglesoft would no longer be permitted—were true. The Token Agreements allowed Patterson to terminate them, and after termination the plaintiffs’ products were no longer authorized to interface with Eaglesoft. The court therefore dismissed the plaintiffs’ tort claims based on those statements.

The court treated the alleged separate statement that continued use would be unlawful differently. It assumed for purposes of the motion that the plaintiffs had adequately alleged such a separate statement and that the pleadings and documents did not conclusively establish its truth. Even so, the court held that the plaintiffs had not pleaded the circumstances of that statement with the particularity required by Rule 9(b), the rule requiring detailed allegations when claims sound in fraud or mistake.

The court reasoned that the plaintiffs identified neither the person who allegedly made the statement nor the customer or customers who allegedly received it. The plaintiffs also did not make clear whether the unlawful-use statement was separate from, or merely an implication of, the statement that the interface would no longer be permitted. The court held that this lack of detail failed to satisfy Rule 9(b), even assuming the statement was false. The court further stated that most of the Delaware claims sounded in fraud and required the same heightened pleading standard. It assumed, without deciding, that Delaware recognizes a trade-libel claim and held that Rule 9(b) would apply to that claim.

Disposition

The court granted Patterson’s Motion to Dismiss. It dismissed Counts II through VI of the amended complaint without prejudice. The court rejected Patterson’s request for dismissal with prejudice because the plaintiffs’ first complaint had asserted California-law claims, while the amended complaint was their first attempt to plead claims under Minnesota and Delaware law. The order did not rule on Count I because Patterson’s motion did not challenge that claim.