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Schell v. Amendia, Inc.

United States District Court, N.D. Georgia, Atlanta Division

October 31, 2019

Gerald R. Schell, M.D., Plaintiff,
Amendia, Inc., Defendant.

          OPINION & ORDER


         Plaintiff Gerald R. Schell, M.D., claims Defendant Amendia, Inc., failed to pay royalties under several contracts to develop medical devices. (Dkt. 1.) Schell sued Amendia for breaching three different agreements, to obtain reimbursement for services and expenses, for a declaratory judgment, and for an accounting. (Id.) Amendia moved to dismiss various claims. (Dkt. 15.) The Court grants that motion in part and denies it in part.

         I. Background and Procedural History

         Schell is a neurosurgeon and spine surgeon who possesses expertise in spinal implant devices and procedures. (Dkt. 1 ¶¶ 1, 6, 8.) Amendia manufactures and sells these kinds of devices. (Id. ¶ 7.) The two collaborated to design and develop various devices, including a pedicle screw system, a facet screw system, and spinal interbody fusion implants. (Id. ¶ 9.) They entered into royalty agreements in 2009, 2010, and 2011 to assure Schell received compensation for his assistance. (Dkts. 1 ¶ 10; 6 at 4-25.)[1]

         The 2009 agreement governed their collaboration on the SPARTAN S3 facet Screw System, SPARTAN Facet Rasp, and MIS PEEK Interbody Device (“MIS PEEK”) (collectively “SPARTAN”), and any next generation designs. (Dkt. 1 ¶ 11.) Amendia agreed to pay Schell a different royalty for each product, including most relevantly a 3.5% royalty on sales of the MIS PEEK device. (Id. ¶ 12.) The agreement gives Schell the right to audit Amendia's finances in order to assure he received accurate royalty payments. (Dkt. 6 at 6.) Amendia retained all intellectual property and patent rights in the product. (Id. at 6-7.) But if Amendia materially breached the agreement by failing to pay royalty fees or to perform other material obligations, Schell had the right to use the patent rights, engineering material, and FDA information. (Dkt. 1 ¶ 15.) Amendia also agreed to reimburse Schell for any damages, costs, or expenses of any nature he incurred as a result of operating Amendia's business. (Id. ¶ 16.) Amendia further agreed to procure, maintain, and present Schell a certificate of coverage for at least $5 million in product liability insurance when it began selling SPARTAN products. (Id.)

         The parties entered into a second agreement in July 2010. (Id. ¶ 20; Dkt. 6 at 13.) It was much like the earlier agreement. It involved that development of a medical device known as the Polyetheretherketone (“PEEK”) Oblique Lumbar Interbody Fusion Device (“OLIF”). (Dkt. 6 at 13.) Amendia agreed to pay Schell a royalty of 2% of its gross sales of that device. (Dkt. 1 ¶ 21.) Schell claims the OLIF device was one type of MIS PEEK device that was part of the 2009 agreement. (Id. ¶ 23.) The 2010 agreement contained a merger clause, saying that it supersedes and replaces all previous agreements “with respect to the subject matter hereof.” (Dkt. 6 at 17.) Even so, Schell claims the 2010 agreement did not nullify the 2009 agreement, requiring Amendia to pay him a royalty of 5.5% of all OLIF device sales - 3.5% for the 2009 agreement and 2% for the 2010 agreement. (Dkt. 1 ¶ 24.)

         The parties entered into a third agreement in March 2011 for the development of something known as Savannah T pedicle screw system. (Id. ¶ 32; Dkt. 6 at 20.) Amendia agreed to pay Schell royalties of 2% of the net sales of the Savannah T system during the term of the agreement. (Dkt. 1 ¶ 26.) Georgia law governs each agreement. (Dkt. 6 at 9, 18, 22.)

         Schell claims that he did everything to fulfill his side of the agreements. He claims he met with Amendia's employees, engineers, and representatives several times to consult on the SPARTAN, OLIF, and Savannah T products. (Dkt. 1 ¶ 40.) He claims they observed his surgeries. (Id.) He claims he traveled throughout the United States from 2009 to 2014 to meet with and teach other surgeons how to use Amendia's products. (Id. ¶ 41.) Schell also alleges that he travelled to conduct promotional and educational activities in 2013 and 2014 for the product, incurring $38, 663.50 in expenses that Amendia has not reimbursed. (Id. ¶ 43.)

         Schell sued Amendia in July 2017. (Dkt. 1.) Amendia moved to dismiss Counts One, Two, Five, and Six for failure to state a claim. (Dkt. 15.) Schell opposed that motion. (Dkt. 19.)

         II. Standard of Review

         Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Under Rule 12(b)(6), a claim will be dismissed for failure to state a claim upon which relief can be granted if it does not plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).

         When considering a motion to dismiss, the court must accept all well-pleaded facts in the complaint as true and draw all reasonable inferences in favor of the plaintiff, the non-movant. See Garfield v. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir. 2006). But the court need not accept as true any legal conclusions couched as factual allegations. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). The court's “duty to accept the facts in the complaint as true does not require [the court] to ignore specific factual details of the pleading in favor of general or conclusory allegations.” Griffin Indus., Inc. v. Irwin, 496 F.3d 1189, 1205-06 (11th Cir. 2007).

         A “district court generally must convert a motion to dismiss into a motion for summary judgment if it considers materials outside the complaint.” Day v. Taylor, 400 F.3d 1272, 1275-76 (11th Cir. 2005); see also Fed. R. Civ. P. 12(d). But a court may consider exhibits attached to the complaint. See Fed. R. Civ. P. 10(c). And the exhibits a plaintiff attaches to its complaint governs when they contradict the allegations of the complaint. See Griffin Indus., Inc., 496 F.3d at 1206. A district court may also consider documents referenced in the complaint, even if they are not physically attached, if the documents are central to the complaint and no party questions their authenticity. See Day, 400 F.3d at 1276. A document is central to a complaint when it is a “necessary part of [the plaintiff's] effort to make out a claim.” Id.; see also Bryant v. Citigroup Inc., 512 Fed.Appx. 994, 995 (11th Cir. 2013) (“Although ordinarily nothing beyond the face of the complaint and the attached documents are considered in analyzing a motion to dismiss, [courts] make an exception where the plaintiff refers to a document in his complaint, it is central to his claim, the contents are not disputed, and the defendant attaches it to his motion to dismiss.”). Under those circumstances, the district court may consider the documents without converting the motion to dismiss into a motion for summary judgment. See Day, 400 F.3d at 1275-76.

         III. Discussion

         A. Breach of Contract Claims

         In Count One, Schell alleges Amendia materially breached the 2009 agreement. (Dkt. 1 ¶ 46-50.) He claims they did this by failing to pay the necessary royalties for MIS PEEK devices other than the OLIF device and by failing to pay complete royalties for the OLIF device after the second quarter of 2010 (when the parties entered into the 2010 agreement). He claims Amendia also breach the 2009 agreement by failing to fulfill its other obligations under the contract (like its obligation to obtain the required insurance and to reimburse Schell for certain expenses). (Id.) In Count Two, Schell also claims Amendia breached the 2010 agreement by failing to pay complete royalties on the OLIF device after July 2010. He also claims Amendia breach the 2010 agreement by failing to fulfill its other obligations.

         To establish a breach of contract claim under Georgia law, Schell must allege: “(1) breach and the (2) resultant damages (3) to the party who has the right to complain about the contract being broken.” Bates v. JPMorgan Chase Bank, NA, 768 F.3d 1126, 1130 (11th Cir. 2014) (quoting Norton v. Budget Rent A Car Sys., Inc., 705 S.E.2d 305, 306 (Ga.Ct.App. 2010)). “A breach occurs if a contracting party repudiates or renounces liability under the contract; fails to perform the engagement as specified in the contract; or does some act that renders performance impossible.”, Inc. v. Paragon Techs., Inc., 740 S.E.2d 887, 893 (Ga.Ct.App. 2013) (citations and punctuation omitted). “When a court construes contractual terms to determine if a breach has occurred, the cardinal rule of contract construction is to ascertain the intention of the parties.” Id. (quoting Bd. of Comm'rs of Crisp Cty. v. City Comm'rs of Cordele, 727 S.E.2d 524, 527 (Ga.Ct.App. 2012)). If the language of a contract is plain and unambiguous, no construction is required and courts must give the contract an interpretation of ordinary significance. See Calabro v. State Med. Educ. Bd., 640 S.E.2d 581, 583 (Ga.Ct.App. 2006). “[I]f the contract is ambiguous . . . courts must apply the rules of contract construction to resolve the ambiguity.” Old Republic Nat'l Ins. Co. v. Panella, 734 S.E.2d 523, 526 (Ga.Ct.App. 2012) (quoting Holmes v. Clear Channel Outdoor, Inc., 644 S.E.2d 311, 313 (Ga.Ct.App. 2007)).

         1. Breach Arising from Failure to Pay Royalties on Non-OLIF Devices (Count One)

         Amendia argues Count One should be dismissed because the OLIF device identified in the 2010 agreement is the same as “the MIS PEEK” device referred to in the 2009 agreement. It thus claims that the merger clause in the 2010 agreement precludes Schell's claims under the 2009 agreement for royalties on the OLIF device after July 1, 2010. (Dkt. 15-1 at 3-4.) Likewise, it claims that the OLIF device was the one and only MIS PEEK device covered by the 2009 agreement, preventing Schell from recovering for any non-OLIF devices.

         The 2010 agreement states OLIF is a Polyetheretherketone (PEEK) Oblique Lumber Interbody Fusion Device, but it does not mention the MIS PEEK Interbody Device or any other PEEK devices. (Dkt. 6 at 13.) Amendia directs the Court to the notation “OLLIF” (sic) and line drawn to “the MIS PEEK Interbody Deviceā€ in provision 2.2 of the 2009 agreement in the original exhibit 1 to Schell's complaint to support its argument. (Dkt. 15-1 at 5 (quoting Dkt. 1 at 25).) Amendia claims this shows the OLIF device was the one and only MIS PEEK device covered by the 2009 agreement. It argues that ...

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