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Ultradent Products, Inc. v. Spectrum Solutions LLC

United States District Court, D. Utah

January 9, 2018

ULTRADENT PRODUCTS, INC., a Utah corporation; ORATECH, LLC, a Nevada limited liability company; Plaintiffs;
v.
SECTRUM SOLUTIONS LLC, a Utah limited liability company; and NEIL J. JOHNSON, an individual; Defendants.

          Dustin B. Pead, Magistrate Judge.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

          Jill N. Parrish, United States District Court Judge.

         Before the court is Defendant Spectrum Solutions and Defendant Neil J. Johnson's motions to dismiss (ECF Nos. 13, 18). They both argue that Plaintiffs have failed to state a claim under the federal Defend Trade Secrets Act. For the reasons below, the court GRANTS the motions and DISMISSES Plaintiffs' fifth claim for relief. The court will hold open the case for ten days should Plaintiffs wish to file a motion to amend. In the event an amendment is not sought or allowed, the court will dismiss the remaining claims.

         I. BACKGROUND[1]

         A. The Spectrum/Oratech Dispute

         Oratech is Ultradent's wholly-owned subsidiary. In 2012, Spectrum and Oratech entered into an agreement wherein Oratech would manufacture DNA test kits for Spectrum. In 2015, Spectrum and Oratech modified their agreement. Under the modified terms, the agreement would run through September 24, 2017 but would automatically be extended for additional two-year terms absent notice of non-renewal provided in writing at least ninety days before the agreement's expiration. That ninety-day deadline was June 26, 2017, but Spectrum did not provide written notice of non-renewal before that date.

         Instead, on June 29, 2017, Spectrum sent Oratech an email indicating that the contract was nearing an end and signaling that Spectrum would not renew the agreement. The next day, Oratech responded with an email of its own indicating that the agreement had automatically been extended for two years because the ninety-day deadline had passed.

         In July 2017, Spectrum told Oratech that it intended to manufacture DNA test kits itself. And despite Spectrum's contractual obligation to pay Oratech royalties if it “enter[ed] into an agreement with any person or entity (other than Oratech or a Referred Manufacturer) to manufacture Covered Products or Competitive Products, ” Spectrum also indicated that it would not pay Oratech royalties for manufacturing DNA test kits itself.

         B. Mr. Johnson's Involvement

         Neil J. Johnson was an Ultradent employee from 2002 until his termination on November 2, 2015. When he was terminated, Johnson was the Manager of Production and oversaw assembly of the DNA test kits Oratech manufactured for Spectrum.

         Johnson signed employment agreements with Ultradent that prohibited him from disclosing Ultradent trade secrets or confidential, proprietary, technical, or business information during or after his employment with Ultradent. The employment agreements also prohibited him from competing, directly or indirectly, with the business of Ultradent for two years.

         II. LEGAL STANDARD

         Unlike state courts, federal courts “are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). “They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Id. (citations omitted). Therefore, this court begins with the presumption that a cause of action lies outside of its limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction. Id.

         Federal Rule of Civil Procedure 12(b)(6) permits defendants to test the legal sufficiency of a complaint prior to discovery. Therefore, the court accepts all well-pleaded allegations of the complaint as true. McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 997 (10th Cir. 2002). The court also draws reasonable inferences from the allegations and views those in the light most favorable to the plaintiff. Dias v. City and Cty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009). “However, conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.” Fernandez-Montes v. Allied Pilots Assoc., 987 F.2d 278, 284 (5th Cir. 1993); see also Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002) (“All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true.”), cert. denied, 538 U.S. 999 ...


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