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Axis Spine NV, LLC v. XT ANT Medical Holdings, Inc.

United States District Court, D. Nevada

April 16, 2018

AXIS SPINE NV, LLC, Plaintiff,
v.
XT ANT MEDICAL HOLDINGS, INC., Defendant.

          ORDER GRANTING MOTION TO DISMISS (ECF NO. 10)

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         Plaintiff Axis Spine NV, LLC sues defendant Xtant Medical Holdings, Inc. for breach of contract, breach of the covenant of good faith and fair dealing, and intentional interference with prospective economic advantage. According to Axis, the parties entered into a contractual relationship for Axis to distribute Xtant's medical devices. Axis alleges Xtant breached the agreement by failing to pay for Axis's services. Axis also alleges Xtant interfered with Axis's relationship with its own sales representatives, who are independent contractors, by failing to pay Axis under the contract.

         Xtant moves to dismiss all claims arguing that the statute of frauds bars Axis's contract-based claims because Axis relies on an unsigned letter of intent. Xtant argues the intentional interference claim is barred by the economic loss doctrine or the gist of the action doctrine, and is inadequately pleaded because there is no allegation Xtant intended to interfere with the relationship or to harm Axis. I grant the motion, with leave to amend.

         I. BACKGROUND

         According to the amended complaint, from 2006 to 2015, Axis distributed medical devices for Xtant's predecessor, X-Spine Systems, Inc. ECF No. 6 at 2. In August 2015, X-Spine was acquired by Bacterin International Holdings, Inc. and renamed Xtant. Id.

         In late 2015, Xtant representatives contacted Axis about expanding the relationship between the two companies. Id. at 3. The parties exchanged drafts of a letter of intent (LOI) from late 2015 through April 2016. Id. On April 9, 2016, Xtant's chief executive officer, Daniel Goldberger, sent the final draft of the LOI to Axis and requested confirmation so he could submit it to Xtant's board of directors for approval. Id. Axis accepted the terms and continued to distribute Xtant's product. Id.

         The LOI was for a three-year term and provided that Xtant would pay Axis $250, 000 at signing, and $75, 000 at each of the first and second anniversaries. Id. It also provided for stock options and for Axis to earn commissions to be calculated and paid monthly. Id. at 3-4.

         Xtant's board conditioned approval of the LOI on Xtant conducting due diligence on Axis. Id. at 4. While Xtant was conducting due diligence, it paid the first commission payment on May 17, 2016. Id. During the summer of 2016, Xtant conducted an inventory count and hired an outside company to perform a financial audit of Axis. Id. Through that audit, Xtant gained access to internal Axis information, including information about Axis's sales representatives. Id. at 4-5. In October 2016, the parties reconfirmed their agreement via a final version of the LOI. Id. at 5.

         Axis alleges that in reliance on the parties' agreement, it restructured its business to better handle Xtant's business. Id. According to Axis, it performed under the agreement, but Xtant experienced cash flow problems resulting in late payments. Id.

         In March 2017, Xtant hired a new chief executive officer, Carl O'Connell. Id. O'Connell reaffirmed the parties' agreement the same month he was hired. Id. Xtant made a $50, 000 payment on April 1, but Xtant still owed Axis a substantial balance. Id.

         Xtant's restructuring officer, David Barker, subsequently contacted Axis about renegotiating the parties' contract. Id. At a June 21 meeting, Barker told Axis that Xtant would not agree to the LOI, would not issue the stock options, and would not pay the commission rates set forth in the LOI. Id. Since then, Xtant has not paid pursuant to the LOI's terms. Id. at 6. Axis alleges Xtant owes nearly $1 million in past due payments. Id. Axis also alleges that as a result of Xtant failing to pay what is owed under the LOI, Axis has not been able to fulfill its obligations to its own sales representatives, who are independent contractors. Id. Based on these allegations, Axis asserts claims for breach of contract, breach of the covenant of good faith and fair dealing, and tortious interference with prospective economic advantage.

         II. ANALYSIS

         In considering a motion to dismiss, "all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party." Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). However, I do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations in the complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). A plaintiff must make sufficient factual allegations to establish a plausible entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). Such allegations must amount to "more than labels and conclusions, [or] a formulaic recitation of the elements of a cause of action." Id. at 555.

         Generally, I may not consider any material beyond the complaint when ruling on a Rule 12(b)(6) motion to dismiss without converting it to one for summary judgment. Lee v. City of Los Angeles,250 F.3d 668, 688 (9th Cir. 2001); Fed.R.Civ.P. 12(d). However, I may consider a document that is not attached to the complaint if the document's "authenticity ... is not contested" ...


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