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Morgan-Rinehart v. Van de Perre

United States District Court, W.D. Texas, Austin Division

April 12, 2017




         BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Defendant A Better Way of Life, Inc. d/b/a Platypus Co. (ABWOL)'s Motion to Dismiss [#24], Plaintiff Laura Morgan-Rinehart (Plaintiff's Response [#31] in opposition, and ABWOL's Reply [#38] in support, as well as Defendant Fred Van de Perre (Van de Perre)'s Motion to Dismiss [#25], Plaintiffs Response [#32] in opposition, Van De Perre's Reply [#37] in support, and Plaintiffs Sur-Reply [#43-1] in opposition.[1] Having reviewed the documents, the governing law, and the file as a whole, the Court now enters the following opinion and orders granting the motions to dismiss.


         Plaintiff brings this action alleging ABWOL, Van De Perre, and PDT failed to pay Plaintiff royalties as required under the parties' various licensing and shareholder agreements, and attempted to deprive Plaintiff of her ownership in her patented invention.

         I. Facts

         A. Plaintiff Develops the Prototype.

         Plaintiff, a dental hygienist based in Austin, Texas, works primarily with children and orthodontic patients. Am. Compl. [#16] ¶¶ 8-9. After witnessing the problems her patients with braces encountered while flossing, Plaintiff invented a prototype of a flossing device "to combat the increasing risks to her patients from a lack of flossing." Id. ¶¶ 9-10. Plaintiff applied for a provisional application for her "Ultimate Orthodontic Floss Aid" (Prototype) with the United States Patent and Trademark Office (USPTO), and on March 14, 2007, she received confirmation of her application. Id. ¶ 11. Plaintiff discussed manufacturing the Prototype with a plastics manufacturer in Austin, but never began production due to financial reasons. Id. ¶ 12.

         B. Plaintiff and PDT Begin to Work Together.

         From May 10 to 12, 2007, Plaintiff attended the annual Texas Dental Association Conference (TDA Conference) in San Antonio, Texas, where she first engaged with Defendant PDT, a Montana-based dental instrument company. Id. ¶ 14. Plaintiff alleges PDT has attended the TDA Conference for the past fifteen years to market its dental products. Id. At the TDA Conference, Plaintiff met PDT's then-co-owners, Van De Perre and his then-wife Laura Miller. Id. ¶¶ 13-14. During their first meeting, Plaintiff shared the general concept for her Prototype and Van De Perre expressed an interest in forming a business relationship. Id. ¶ 15. Before any further discussions occurred, Plaintiff and Van de Perre, on behalf of himself and PDT, signed a nondisclosure agreement. Id. ¶ 16. Once the agreement was signed, Plaintiff showed Van de Perre a sample of the Prototype. Id. Van de Perre confirmed his interest in entering a business relationship with Plaintiff to develop, manufacture, and sell the Prototype. Id. ¶ 17.

         Later, in June 2007, Van de Perre contacted Plaintiff and asked her to mail him 20 units of the Prototype so he could introduce it to the dental community in Montana and solicit feedback. Id. ¶ 18. Plaintiff sent the samples to Van de Perre. Id. After considering the feedback, Van de Perre and Plaintiff discussed the design, purpose, production, marketing, pricing, and name of the final product. Id. ¶ 19. Van de Perre told Plaintiff he wanted to have the final product ready to market by February 2008. Id. ¶ 20.

         C. Plaintiff and PDT Market and Sell the Platypus Flosser.

         In October 2007, Van de Perre told Plaintiff he wanted to formalize PDT's business relationship with Plaintiff. Id. ¶ 21. Accordingly, in November 2007, Van de Perre and Plaintiff entered into a non-exclusive license agreement that allowed PDT to develop, manufacture, market, sell, and/or distribute Plaintiffs product based on the patented Prototype in exchange for a 5% royalty of the Net Selling Price of the product (2007 PDT Agreement). Id. ¶ 22. Van de Perre signed the 2007 PDT Agreement on behalf of PDT. Id. ¶ 23.

         In February 2008, PDT launched the final product in Chicago, Illinois, under the name "Platypus." Id. ¶ 24. On February 28, 2008, Van de Perre told Plaintiff approximately 20, 000 units of the Platypus flosser had sold during the launch. Id. ¶ 25. After the launch, PDT sold the Platypus flosser to stores and dental offices in Texas. Id. ¶ 28. Beginning in May 2008, PDT sent monthly royalty checks and sales reports to Plaintiff. Id. ¶¶ 26-27. On March 14, 2008, Plaintiff and her attorney Rick Yeager (Yeager) filed a non-provisional patent application for the Platypus flosser with the USPTO entitled "Method and Apparatus for Orthodontic Floss Aid" (Patent). Id. ¶ 29. Van de Perre and Plaintiff verbally agreed PDT would pay Yeager's fees for his work on the patent application. Id. ¶ 30.

         In the fall of 2008, Plaintiff and Van de Perre continued to market and distribute the Platypus flosser. Id. ¶ 34. Plaintiff provided interviews, attended trade shows, and visited dental offices in Texas. Id. For instance, Van de Perre set up an interview of Plaintiff with Hygienetown magazine in Texas, which was published with the title "PDT Invention Borne of Passion" and distributed in Texas. Id. ¶ 35. Van de Perre and Plaintiff also attended the American Dental Association's 149th Annual Session (ADA Session) in San Antonio to market the Platypus flosser. Id. ¶ 36. On January 31, 2009, Orthtown magazine published an article about PDT, stating PDT had sold more than 1.4 million Platypus flossers. Id. ¶ 37. However, the sales reports Plaintiff received up until January 2009 stated only 1, 096, 800 Platypus flossers were sold. Id. ¶ 38.

         D. ABWOL Begins to Market and Sell Platypus Flossers.

         On December 22, 2008, without Plaintiffs knowledge, Van de Perre and his then-wife Miller formed and incorporated Defendant ABWOL to distribute and sell the Platypus flosser. Id. ¶ 31. When ABWOL was incorporated, it authorized 50, 000 shares of common stock and listed Van de Perre and Miller as shareholders. Id. Van de Perre, on behalf of ABWOL, agreed to supply over 7, 000 CVS stores with the Platypus flosser. Id. ¶ 32. Plaintiff did not receive any royalty payments from ABWOL's sales of the Platypus flosser until 2011. Id. ¶ 33.

         In October 2009, Plaintiff discovered Van de Perre and Miller were engaged in divorce proceedings. Id. ¶ 39. On October 12, 2009, PDT informed Plaintiff that Van de Perre no longer worked there. Id. ¶ 40. Later, on November 19, 2009, Miller, on behalf of PDT, and Plaintiff entered into a new license agreement that granted PDT an exclusive license to develop, manufacture, market, sell, and distribute the Platypus flosser in exchange for a 5% royalty on products sold to "the dental professional market" and a 2% royalty on products sold to the "consumer market" (2009 PDT Agreement). Id. ¶¶ 41, 43. The 2009 PDT Agreement states that it supersedes any prior agreements between the parties. Id. ¶ 43.

         In early September 2010, Van de Perre, now working solely at ABWOL, told Plaintiff for the first time that ABWOL was selling the Platypus flosser. Id. ¶ 48. He said he was interested in engaging in a new business relationship with Plaintiff and offered her an equity stake in ABWOL. Id. On September 18, 2010, Van de Perre flew to Austin to meet with Plaintiff and her attorney Yeager to discuss a business relationship between Plaintiff and ABWOL. Id. ¶ 49. Van de Perre told Plaintiff "Miller was defrauding Plaintiff, was not devoting sufficient business resources to the Platypus flosser, had lost an important deal with CVS and other retailers, and was emotionally and mentally unstable." Id. ¶ 50.

         After these conversations, Van de Perre sent Plaintiff a proposed Memorandum of Understanding, which states Plaintiff agrees to sell all licensing and patent rights in the Platypus flosser to ABWOL, and ABWOL agrees to transfer 10% equity in ABWOL to Plaintiff (2010 MOU). Id. ¶ 51. The 2010 MOU also states ABWOL intended to pay royalties to Plaintiff in an amount "not less than the agreement stipulated in the existing [2009 PDT Agreement] between [Plaintiff] and PDT." Id. In addition, the 2010 MOU provides "within 30 days of the official dissolution of Fred and Lina Van de Perre's marriage, [Plaintiff]/ABWOL will finalize this agreement in its entirety." Id. ¶ 52.

         On October 4, 2011, Van de Perre and Miller finalized their divorce. Id. ¶ 56. As part of the divorce agreement, all of Van de Perre's stock in PDT was awarded to Miller, all of Miller's stock in ABWOL was awarded to Van de Perre, and all rights associated with the Platypus flosser were awarded to Van de Perre. Id. Plaintiff was not notified of the divorce agreement until "recently." Id.

         On December 9, 2011, Plaintiff and Van de Perre signed a shareholder agreement (2011 Shareholder Agreement), providing Plaintiff held 100 shares and Van de Perre held 900 shares of the 1, 000 issued shares in ABWOL. Id. ¶ 59. However, Plaintiff was never listed as a shareholder in ABWOL documents or tax returns, asked to participate in board meetings, or updated about ABWOL's business. Id. Plaintiff also never received any distributions or dividends from ABWOL. Id. Further, ABWOL's 2011 tax return listed Van de Perre as owning 64.75% of the shares. Id. ¶ 61. ABWOL's tax returns from 2012, 2013, and 2014 list Van de Perre as owning 100% of the shares. Id. ¶¶ 62-64.

         In March 2013, Plaintiff asked Van de Perre to send her certain tax forms required for shareholders. Id. ¶ 69. Van de Perre told Plaintiff if she wanted the forms, she would have to be officially listed as a shareholder, and as such would be required to pay 10% of ABWOL's loans, losses, and additional investments. Id. He also represented that in 2013 ABWOL had a loss of $140, 000. Id. ABWOL's 2013 tax return, however, states ABWOL reported a loss of $18, 274. Id. ¶ 70.

         E. Plaintiff Assigns Her Patent Rights to ABWOL.

         In 2012, Plaintiffs Patent application was still pending. Id. ¶ 67. Around that time, Van de Perre told Plaintiff her attorney Yeager was not effectively handling the application and stopped paying Yeager's attorneys' fees. Id. Van de Perre explained he thought assigning the Patent to ABWOL would help the Patent application get approved and identified a new attorney, David Johnson, to assist. Id. On March 28, 2013, Van de Perre and Plaintiff signed an agreement assigning full and exclusive rights in the Patent to ABWOL for $10.00 (2013 Patent Assignment). Id. ¶ 71.

         F. ABWOL Continues Sales of the Platypus Flosser.

         From 2012 until the present lawsuit, ABWOL continued to sell the Platypus flosser to retail stores and dental offices. Id. ¶ 72. At least some of these stores and offices are located in Texas. Id. In early 2016, Van de Perre's former assistant Misty Saldana-Williams informed Plaintiff that Van de Perre and ABWOL were lying to Plaintiff about her ownership and interest in ABWOL and that Van de Perre was converting some of ABWOL's assets for his personal use. Id. ¶ 73.

         II. Procedural Background

         Plaintiff filed her Original Petition in state court on November 21, 2016, and Van de Perre and ABWOL timely removed to this Court on December 21, 2016. Not. Removal [#1]. Plaintiff filed her Amended Complaint on January 30, 2017, alleging seven counts against Van de Perre and ABWOL-interference with an existing contract, fraud, statutory fraud, negligent misrepresentation, breach of fiduciary duty, a violation of § 152.202 of the Texas Business and Organizations Code, ...

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