Cardiovascular Systems, Inc. v. Petrucci

Background

Cardiovascular Systems, Inc. (CSI), a Delaware corporation with its principal place of business in Minnesota, owns intellectual-property rights involving orbital atherectomy devices. Gary Petrucci had been a member of CSI’s board and had served as CSI’s interim chief executive officer before founding Cardio Flow, Inc. Lela Nadirashvili is the widow of Dr. Leonid Shturman, a former chief executive officer of CSI’s predecessor and a former CSI employee.

CSI and Shturman had disputed ownership of technology involving counterweights in atherectomy devices. After Shturman’s death, CSI alleged that Petrucci proposed that he and Nadirashvili form Cardio Flow and then helped arrange a 2012 lawsuit by Nadirashvili against CSI. That lawsuit ended with a settlement agreement dividing patent portfolios between CSI and Nadirashvili.

Under Section 3(A), Nadirashvili granted CSI a worldwide, royalty-free, paid-up, irrevocable exclusive right and license under the Nadirashvili Patent Portfolio for certain rotational atherectomy devices or methods using solid counterweights. Section 10 generally restricted assignment of the settlement agreement and its rights without written consent, but allowed assignment with a patent-portfolio transfer if the recipient agreed in writing to be bound by the agreement.

CSI alleged that Nadirashvili assigned the patent portfolio to Cardio Flow in 2012 without Cardio Flow agreeing in writing to be bound by the settlement agreement. CSI also alleged that Cardio Flow later developed the FreedomFlow device using solid-counterweight technology, violating CSI’s supposed exclusive right to develop such devices.

Claims and motions

Petrucci and Nadirashvili each filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Under that rule, a complaint must allege enough factual matter to make a claim legally plausible. Fraud claims also had to meet Rule 9(b), which requires particular detail about the alleged fraud.

CSI asserted:

- breach of contract and breach of the implied covenant of good faith and fair dealing against Nadirashvili; - tortious interference with contract against Petrucci; - fraud against Petrucci and Nadirashvili; and - a request for a permanent injunction.

Court’s analysis

The court relied on its prior ruling that Section 3(A) granted CSI an exclusive license to specified patent rights, not a separate exclusive right to control the entire marketplace for solid-counterweight atherectomy devices. The court also had previously ruled that the license continued with the patents after their assignment to Cardio Flow.

For the alleged 2016 breach involving the FreedomFlow device, the court held that CSI had not identified a particular licensed patent that the device infringed or alleged that the device infringed every element of at least one patent claim. The court therefore dismissed CSI’s contract and implied-covenant claims concerning the device for failure to state a claim.

For the alleged 2012 breach of Section 10, the court applied Minnesota’s six-year statute of limitations. It determined that any breach occurred when the patent portfolio was assigned in November 2012, not when CSI later discovered information about the assignment or suffered later damages. The court rejected CSI’s arguments that the discovery rule, delayed damages, or fraudulent concealment postponed the limitations period. It dismissed the contract and implied-covenant claims concerning the assignment as time-barred.

The court dismissed CSI’s tortious-interference claim against Petrucci because CSI had not plausibly alleged that he intentionally caused a breach of the settlement agreement. The court also ruled that two alleged bases for interference—the alleged scheme surrounding the settlement and the alleged design of the assignment agreement—were barred by the six-year statute of limitations. The court found that the complaint did not adequately plead fraudulent concealment.

The court dismissed the fraud claims against both Petrucci and Nadirashvili. It found that CSI had not alleged a specific false representation of a material fact or CSI’s reliance on such a representation. The court also found that CSI’s allegations about the defendants’ fraudulent intent were conclusory and did not satisfy Rule 9(b)’s particularity requirement.

Disposition

Judge Susan Richard Nelson granted Petrucci’s Motion to Dismiss and granted Nadirashvili’s Motion to Dismiss. The court dismissed CSI’s contract, implied-covenant, tortious-interference, and fraud claims and ordered that judgment be entered accordingly. The opinion does not separately state a disposition for the request for a permanent injunction.