Direct Biologics v. Kimera Labs, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

DIRECT BIOLOGICS, LLC, )

)

Plaintiff, ) Case No.: 4:18CV2039 HEA

)

v. )

)

KIMERA LABS, INC., )

)

Defendant. )

OPINION, MEMORANDUM AND ORDER

This matter is before the Court on Defendant’s Motion to Dismiss Count III,

[Doc. No. 40]. The motion is fully briefed. For the reasons set forth below, the

Motion is denied.

Facts and Background1

Plaintiff brought this action seeking specific performance and injunctive

relief against Defendant. Plaintiff’s First Amended Complaint alleges breach of

contract (Count I), seeks injunctive relief against a former employee (Count II),

and alleges a breach of an implied warranty of merchantability (Count III).

With respect to Count III, Plaintiffs’ Amended Complaint alleges the

following:

1 The recitation of facts is taken from Plaintiffs’ Complaint and is set forth for the purposes of

this Opinion only. It in no way relieves the parties of the necessary proof of the facts herein.

Kimera Labs manufactures an acellular product known as exosomes. An

exosome is a nano particle lipid vesicle, and the primary communication device

between cells; they transfer ribonucleic acids, as well as other proteins, between

cells for the primary purpose of healing.

Exosomes have been used to treat a variety of conditions, but Kimera Labs’

exosomes are marketed for topical applications only.

From time-to-time from February through August 2018, Direct Biologics

purchased exosomes from Kimera Labs. Direct Biologics sold some but not most

of the exosomes it purchased from Kimera Labs and gave away many samples to

doctors for clinical use.

Kimera Labs’ failure to receive accreditation from the American Association

of Tissue Banks led Direct Biologics to question Kimera Labs’ manufacturing

processes and the quality and safety of its exosomes. It thus had several samples of

the exosomes in its inventory tested. The exosomes tests were performed by a firm

called RayBiotech, a laboratory known to be used by Kimera Labs.

The test results were significant in that the protein levels in the samples

widely varied where there should have been a consistent and appreciable amount

of detected proteins in each lot. The test results confirmed Direct Biologics’

concerns regarding Kimera Labs’ manufacturing processes, and the quality of its

products. Direct Biologics thus quarantined its remaining inventory of Kimera

Labs’ exosomes, as none of it can be safely sold to a doctor without first testing its

chemical composition.

Kimera Labs breached its implied warranty of merchantability in selling

Direct Biologics exosomes that cannot be sold without first testing for their

chemical composition.

Direct Biologics has been damaged by Kimera Labs’ breach in that it paid

Kimera Labs more than $100,000 for the unsellable exosomes in its inventory.

Defendant moves to dismiss Count III for failure to state a cause of action

under Rules 12(b)(6).

Legal standard

In examining a Rule 12(b)(6) motion to dismiss for failure to state a claim,

the Court accepts all of Plaintiff's factual allegations as true and construes those

allegations in Plaintiff's favor. Kulkay v. Roy, 847 F.3d 637, 641 (8th Cir. 2017).

To survive such a motion, Plaintiff's complaint “must include sufficient factual

allegations to provide the grounds on which the claim rests.” Drobnak v. Andersen

Corp, 561 F.3d 778, 783 (8th Cir. 2009). Put simply, Plaintiff's claim for relief

must be “plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127

S. Ct. 1955, 167 L. Ed. 2d 929 (2007). “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,

556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009).

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167

L.Ed.2d 929 (2007), the Supreme Court revisited the standards for determining

whether factual allegations are sufficient to survive a Rule 12(b)(6) motion to

dismiss:

Federal Rule of Civil Procedure 8(a)(2) requires only “a short and

plain statement of the claim showing that the pleader is entitled to relief,” in

order to “give the defendant fair notice of what the ... claim is and the

grounds upon which it rests,” Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct.

99, 2 L.Ed.2d 80 (1957). While a complaint attacked by a Rule 12(b)(6)

motion to dismiss does not need detailed factual allegations, ibid.; Sanjuan

v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (C.A.7

1994), a plaintiff's obligation to provide the “grounds” of his “entitle [ment]

to relief” requires more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not do, see Papasan v.

Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (on a

motion to dismiss, courts “are not bound to accept as true a legal conclusion

couched as a factual allegation”). Factual allegations must be enough to raise

a right to relief above the speculative level, see 5 C. Wright & A. Miller,

Federal Practice and Procedure § 1216, pp. 235–236 (3d ed. 2004)

(hereinafter Wright & Miller) (“[T]he pleading must contain something

more ... than ... a statement of facts that merely creates a suspicion [of] a

legally cognizable right of action”), on the ASSUMPTION THAT ALL

THE allegations in the complaint are true (even if doubtful in fact), see, e.g.,

Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508, n. 1, 122 S.Ct. 992, 152

L.Ed.2d 1 (2002); Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827,

104 L.Ed.2d 338 (1989) (“Rule 12(b)(6) does not countenance ... dismissals

based on a judge's disbelief of a complaint's factual allegations”); Scheuer v.

Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (a well-

pleaded complaint may proceed even if it appears “that a recovery is very

remote and unlikely”).

Bell Atlantic, 550 U.S. at 555–56 (footnote omitted); see Ashcroft v. Iqbal, 556

U.S. 662, (2009) (instructing that “short and plain statement” requirement

“demands more than an unadorned, the-defendant-unlawfully-harmed me

accusation.”). Thus, the Eighth Circuit Court of Appeals has recognized that, under

Bell Atlantic, “To survive a motion to dismiss, a complaint must contain factual

allegations sufficient ‘to raise a right to relief above the speculative level....’”

Parkhurst v. Tabor, 569 F.3d 861, 865 (8th Cir.2009) (quoting Bell Atlantic, 550

U.S. at 555). To put it another way, “the complaint must allege ‘only enough facts

to state a claim to relief that is plausible on its face.’ ” B & B Hardware, Inc. v.

Hargis Indus., Inc., 569 F.3d 383, 387 (8th Cir.2009) (quoting Bell Atlantic, 550

U.S. at 570); accord Iqbal, 556 U.S. at 678(“Where a complaint pleads facts that

are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line

between possibility and plausibility of entitlement to relief.’ ”) (quoting Bell

Atlantic, 550 U.S. at 557).

The court must still “accept as true the plaintiff's well pleaded allegations.”

Parkhurst, 569 F.3d at 865 (citing Neitzke v. Williams, 490 U.S. 319, 326–27, 109

S.Ct. 1827, 104 L.Ed.2d 338 (1989)); B & B Hardware, Inc., 569 F.3d at 387

(“[W]e ‘assume[ ] as true all factual allegations of the complaint’ ” (quoting Levy

v. Ohl, 477 F.3d 988, 991 (8th Cir.2007))). The court must also still “construe the

complaint liberally in the light most favorable to the plaintiff.” Eckert v. Titan Tire

Corp., 514 F.3d 801, 806 (8th Cir.2008) (post-Bell Atlantic decision). On the other

hand, “[w]here the allegations show on the face of the complaint that there is some

insuperable bar to relief, dismissal under Rule 12(b)(6) is [still] appropriate.”

Benton v. Merrill Lynch & Co., Inc., 524 F.3d 866, 870 (8th Cir.2008) (citing

Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546 (8th Cir.1997), for this standard

in a discussion of Rule 12(b)(6) standards in light of Bell Atlantic ).

Discussion

Claims that a defendant breached the implied warranty of merchantability

require that a plaintiff prove that defendant: (1) sold goods to the plaintiff; (2) that

were not “merchantable” at the time of the sale; (3) the plaintiff suffered injury or

damages to himself or his property; (4) the defective nature of the goods was the

proximate cause of the harm, and; (5) plaintiff gave notice to the defendant. Hope

v. Nissan N.A., Inc., 353 S.W.3d 68, 90 (Mo. Ct. App. 2011).

Defendants argue Count III must be dismissed because Plaintiff failed to

allege that the exosomes at issue were not merchantable at the time of sale. Under

the stated standards, however, it is a reasonable inference that the allegedly non-

merchantable exosomes at issue were in not merchantable at the time of sale.

Plaintiff alleges Defendant manufactures exosomes, that Plaintiff questioned

Defendant’s manufacturing processes and the quality and safety of its exosomes,

and that Plaintiff purchased exosomes from Defendant. Assuming the truth of the

allegations, it can be inferred that the exosomes at issue were manufactured below

what Plaintiff believes to be acceptable.

Defendant’s reliance on Brown v. Simmons, 478 F.3d 922, 923 (8th Cir.

2007) is unpersuasive in light of the standards set forth in Twombly and Iqbal. See

Cornerstone Consultants v. Production Input Solutions, L.L.C., 789 F.Supp.2d

1029, (N.D. IA 2011).

Likewise, Defendant’s argument that Count III must be dismissed for failure

to satisfy the heightened pleading requirements of Rule 9(c) is without merit. Rule

9(c) provides:

[i]n pleading conditions precedent, it suffices to allege generally that all

conditions precedent have occurred or been performed. But when denying

that a condition precedent has occurred or been performed, a party must do

so with particularity.” The administrative filing requirements of Title VII are

“a condition precedent to suit subject to the pleading requirements of Rule

9(c).”

Defendant argues that Plaintiff has “in effect” asserted a condition: the sale

of exosomes with consistent and appreciable amounts of detected proteins, and

therefore, Plaintiff must plead the lack of condition with particularity under Rule

9(c). Plaintiff, however, has not asserted that a “condition” has not been satisfied,

rather, Plaintiff alleges that the products it received. i.e., the exosomes were not

merchantable when received, and therefore alleges Defendant breached the implied

warranty of merchantability.

“A condition precedent is a condition which must be fulfilled before

the duty to perform an existing contract arises.” Lowery v. Air Support Int'l,

Inc., 982 S.W.2d 326, 329 (Mo. Ct. App. 1998). See also Wheelhouse

Marina Real Estate, L.L.C. v. Bommarito, 284 S.W.3d 761, 771 (Mo. Ct.

App. 2009) (“The condition must occur before the duties prescribed by the

contract must be performed.”).

“Conditions precedent are usually created by such phrases as ‘on

condition,’ ‘provided that,’ ‘so that,’ and the like, although such expressions

are not necessary if the contract is of such a nature as to show that parties

intended to provide for a condition precedent.” Kansas City Live Block 125

Retail, LLC v. Bhakta, 476 S.W.3d 326, 332 (Mo. Ct. App. 2015) (quotation

marks omitted). “Missouri law clearly does not favor conditions precedent,”

and “[c]ourts should not construe contract provisions to be conditions

precedent unless required to do so by plain, unambiguous language or by

necessary implication.” James E. Brady & Co. v. Eno, 992 F.2d 864, 869

(8th Cir. 1993).

CitiMortgage, Inc. v. Equity Bank, N.A., 261 F. Supp. 3d 942, 952 (E.D. Mo.

2017), order clarified, No. 4:15-CV-230-SPM, 2017 WL 7693367 (E.D. Mo. Dec.

1, 2017), and aff'd, 942 F.3d 861 (8th Cir. 2019). Plaintiff is not alleging a breach

of a condition precedent; Plaintiff is alleging a breach of the implied warranty of

merchantability, which arises from the sale of the exosomes.

Conclusion

Under the applicable legal standards, assuming the truth of the allegations in

the Complaint and drawing all reasonable inferences in favor of Plaintiffs,

Plaintiffs’ Complaint withstands the Rule 12(b)(6) challenge.

Accordingly,

IT IS HEREBY ORDERED that the Motion to Dismiss, [Doc. No. 40] is

denied.

Dated this 14" day of January, 2020.

HENRY EDWAR AU dp

UNITED STATES DISTRICT JUDGE