3:19-cv-00525
M.D. Tenn.Sep 13, 2019Background
- Plaintiffs SDC Financial, LLC and SmileDirectClub, LLC sell direct‑to‑consumer clear orthodontic aligners and operate SMILESHOP retail locations; Align Technology became a member/supplier and signed Operating and Supply Agreements with restrictive covenants.
- Defendant Martin Bremer worked for Align (allegedly as Global Process Owner), assisted in building Align’s manufacturing process for SDC, then left and opened a competing SmileStore in Nashville that plaintiffs say copies SMILESHOP and uses a direct‑to‑consumer model.
- Plaintiffs sued asserting ten counts including: trademark dilution (Count III), trade secret misappropriation under TUTSA and DTSA (Counts V–VI), inducement of breach of contract (Counts VII–VIII), tortious interference (Count IX), and unjust enrichment (Count X).
- Defendants moved to dismiss Counts III and V–X under Fed. R. Civ. P. 12(b)(6) (failure to state a claim) and 12(b)(7) (failure to join indispensable party Align), arguing insufficient fame for dilution, that “remembered” information is not protectible, TUTSA preemption of non‑trade‑secret claims, and that Align is indispensable.
- Court permitted sealed filing of the Align agreements, analyzed pleading sufficiency under Iqbal/Twombly, and ruled: Count III dismissed without prejudice; Counts V and VI survive; Counts VII–VIII and IX survive (not preempted); Count X (unjust enrichment) dismissed as preempted; Align is not indispensable for inducement claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Trademark dilution (Count III) — fame in Tennessee | SMILESHOP is inherently distinctive, extensively used/advertised and famous in Tennessee (HQ in Nashville, 240+ stores) | Complaint lacks factual allegations showing mark is "famous" in Tennessee as required | Dismissed without prejudice for failure to plead fame with the particularity required by Iqbal/Twombly; leave to amend permitted |
| Trade‑secret misappropriation (Counts V & VI, TUTSA & DTSA) | Bremer acquired SDC confidential processes, marketing, workflows, and used them to launch SmileStore; SDC took reasonable steps to protect secrecy | Defendants: alleged claims rely on "remembered information" or lawful skill/expertise; no improper acquisition or breach of duty | Claims plausibly pleaded; court rejects categorical rule that "remembered information" cannot be a trade secret and denies dismissal of Counts V and VI |
| Preemption re procurement/inducement of breach (Counts VII & VIII) | Defendants induced Align to breach Operating/Supply Agreements (prohibiting sales to Competing Businesses or direct‑to‑consumer models) | Defendants: inducement claims simply repackaged trade‑secret allegations and thus preempted by TUTSA | Not preempted: inducement claims hinge on breach of contracts (whether defendants are a "Competing Business"), and do not necessarily require proof of trade‑secret misappropriation; dismissal denied |
| Intentional interference with business relations (Count IX) | Defendants interfered with SDC’s relations with Align by inducing Align to do business with SmileStore | Defendants: claim rests on misappropriation (so preempted) or cannot be proved absent trade‑secret use | Not preempted: claim is based on interference with contractual relations and will succeed or fail independently of trade‑secret proof; dismissal denied |
| Unjust enrichment (Count X) | Plaintiffs conferred benefit (confidential know‑how) that defendants used as a blueprint; equity requires restitution | Defendants: claim duplicates trade‑secret theory and is preempted by TUTSA; plaintiffs did not confer benefit willingly | Preempted and dismissed: unjust enrichment is quasi‑contractual and here rests on same confidential information as TUTSA claims; dismissal affirmed |
| Failure to join Align (Rule 12(b)(7)/Rule 19) | Align has direct contractual interests; its absence will impair its ability to protect interests on inducement claims | Defendants: Align is indispensable for all non‑trademark claims because agreements constrain Align’s sales; without Align relief is incomplete | Align is not required: defendants adequately represent Align’s interests as to inducement claims and disputes over whether defendants’ business breaches the agreements are factual defenses defendants can and will litigate; motion to dismiss for nonjoinder denied |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (Twombly plausibility and pleading requirements)
- AutoZone, Inc. v. Tandy Corp., 373 F.3d 786 (6th Cir. 2004) (federal/state antidilution statutes analyzed interchangeably)
- Moore v. Weinstein Co., [citation="545 F. App'x 405"] (6th Cir. 2013) (high famousness threshold for dilution claims)
- PartyLite Gifts, Inc. v. Swiss Colony Occasions, [citation="246 F. App'x 969"] (6th Cir. 2007) (consideration of public availability in trade‑secret analysis)
- B&L Corp. v. Thomas & Thorngren, Inc., 162 S.W.3d 189 (Tenn. Ct. App. 2004) (discussing remembered information and confidentiality)
- Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649 (E.D. Tenn. 2004) (adopting “same proof” standard for UTSA preemption)
- Wachter, Inc. v. Cabling Innovations, LLC, 387 F. Supp. 3d 830 (M.D. Tenn. 2019) (applying same‑proof preemption analysis under TUTSA)
- Whitehaven Cmty. Baptist Church v. Holloway, 973 S.W.2d 592 (Tenn. 1998) (elements and nature of unjust enrichment under Tennessee law)