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Lynch v. Olympus America, Inc.

United States District Court, D. Colorado

October 30, 2018

KATHLEEN LYNCH, an individual, Plaintiff,



         This case comes before the court on four Motions to Dismiss filed by the three named Defendants in this action, Olympus America, Inc. (“Olympus America”), Olympus Corporation of the Americas (“OCA”), and Olympus Medical Systems Corporation (“Olympus Medical”) (collectively, “Defendants”). The undersigned Magistrate Judge fully presides over this case pursuant to 28 U.S.C. § 636(c), the Parties' consent, and the Orders of Reference dated May 2, 2018 [#11; #14]. In these Motions to Dismiss, Defendants argue for dismissal pursuant to Fed.R.Civ.P. 12(b)(6) (“the 12(b)(6) Motions”), alleging that Plaintiff Kathleen Lynch (“Plaintiff” or “Ms. Lynch”) has failed to state a claim upon which relief can be granted [#18; #19; #20, filed May 14, 2018].[1] On that same day, Olympus Medical filed a Rule 12(b)(2) motion (“the 12(b)(2) Motion” and collectively with the 12(b)(6) Motions, “Defense Motions”), arguing that it should be dismissed as a defendant for want of personal jurisdiction. [#17]. Plaintiff responded to the 12(b)(6) Motions and the 12(b)(2) Motion on May 29 [#21; #22; #23; #24] and the Defendants replied on June 12 [#28; #29; #30; #31]. The Defense Motions are now ripe for disposition and this court concludes that oral argument would not materially assist resolution of the Defense Motions. For the reasons set forth in this Memorandum Opinion and Order, the 12(b)(6) Motions by Olympus America and OCA are GRANTED. In addition, the Rule 12(b)(2) Motion by Olympus Medical is GRANTED, and its Rule 12(b)(6) Motion is DENIED AS MOOT.


         The following facts are drawn from the operative Complaint in this action and are taken as true for the purposes of the instant 12(b)(6) Motions. An endoscopy is a medical procedure that involves the insertion of an endoscope into a patient's body for therapeutic and/or diagnostic purposes. [#1 at ¶¶ 19, 24]. Defendants are in the business of manufacturing, selling, and distributing such devices, including the particular device at issue in this case: the TJF-Q180V Duodenoscope (“Q180V Scope”).[2] [Id. at ¶ 19]. Olympus Medical is a Japanese corporation headquartered in Tokyo, Japan that designs, manufactures, and sells endoscopes. [Id. at ¶ 5]. Olympus America and OCA are New York corporations with principal places of business in Pennsylvania that perform regulatory and quality assurance functions for the medical devices manufactured by Olympus Medical. [Id. at ¶¶ 3, 7]. Plaintiff pleads that Olympus America and OCA are virtually indistinguishable from one another in functions and responsibilities. [Id. at ¶ 8].

         In 2010, Olympus Medical redesigned the Q180V Scope, broadening the range of scope positions in which the guide wire could be securely locked. [Id. at ¶¶ 19, 26]. This redesign changed the overall design of the Scope, but Olympus Medical did not alter the required reprocessing protocols when selling the redesigned Scope. [Id. at ¶ 27]. Sellers of medical equipment like the Q180V Scope are required to provide instructions for end-users to clean and sterilize the scope after use to avoid cross-contamination between patients. [Id. at ¶ 19]. If a seller provides an inadequate reprocessing protocol, then end-users following that protocol will not adequately sterilize the scope between uses. [Id. at ¶ 20]. If a scope is not adequately cleaned, a patient is placed at an increased risk for potentially serious infection when they are exposed to residual fluids and biological matter from a prior patient. [Id. at ¶ 22].

         Plaintiffs allege that not only did Olympus Medical fail to update the reprocessing protocols so end-users could reliably clean their Q180V Scopes, the Scope was redesigned in such a manner that reliable cleaning was either difficult or entirely impossible. [Id. at ¶ 25]. Specifically, the elevator assembly in the Scope contains microscopic crevices that cannot be reached with a brush during cleaning.[3] [Id.]. These crevices can retain leftover fluids or biological matter after use and lead to serious infection when used on a new patient. [Id.].

         In January 2016, Ms. Lynch underwent an ERCP at UCH Hospital using a contaminated Q180V Scope. [Id. at ¶ 23]. Sometime thereafter, Ms. Lynch fell ill with an infection. [Id.]. Believing that she fell ill due to a contaminated Q180V Scope used in her ERCP, she filed this action on March 1, 2018. [Id.].


         I. Personal Jurisdiction under Rule 12(b)(2)

         Olympus Medical has filed motions to dismiss for both lack of personal jurisdiction and for failure to state a claim. “A federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction) and the parties (personal jurisdiction).” Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 430-31, 127 S.Ct. 1184, 1191, 167 L.Ed.2d 15 (2007) (observing that without jurisdiction the court cannot proceed at all in any cause; it may not assume jurisdiction for the purpose of deciding the merits of the case). Though a motion to dismiss pursuant to Rule 12(b)(6) considers the sufficiency of the operative pleading and does not weigh the potential evidence that the parties might present in the case, see Pirraglia v. Novell, Inc., 339 F.3d 1182, 1187 (10th Cir. 2003), Rule 12(b)(6) judgments are considered by the United States Court of Appeals for the Tenth Circuit (“Tenth Circuit”) as dismissals on the merits. See Slocum v. Corp. Exp. U.S. Inc., 446 Fed.Appx. 957, 960 (10th Cir. 2011) (observing that a Rule 12(b)(6) dismissal is considered an adjudication on the merits since it requires an evaluation of the substance of a complaint). Accordingly, this court first considers whether Ms. Lynch has established personal jurisdiction over Olympus Medical.

         Rule 12(b)(2) of the Federal Rules of Civil Procedure allows a defendant to challenge the court's exercise of personal jurisdiction. Fed.R.Civ.P. 12(b)(2). Plaintiff bears the burden of demonstrating that the court has personal jurisdiction over the Defendants. See Dudnikov v. Chalk & Vermilion Fine Arts, 514 F.3d 1063, 1069 (10th Cir. 2008). When, as here, the court decides a Rule 12(b)(2) motion to dismiss without holding an evidentiary hearing, “the plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion.” AST Sports Sci., Inc. v. CLF Distrib. Ltd., 514 F.3d 1054, 1057 (10th Cir. 2008). “The plaintiff[s] may make this prima facie showing by demonstrating, via affidavit or other written materials, facts that if true would support jurisdiction over the defendant.” OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998). In considering this question, the court must accept all well pleaded facts as true and must resolve any factual disputes in favor of the plaintiff. See Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995).

         To establish jurisdiction over a non-resident defendant, a plaintiff must show that the exercise of jurisdiction is authorized under the relevant state long-arm statute, and does not offend due process. Wenz, 55 F.3d at 1506 (10th Cir. 1995). Because the Colorado Supreme Court has determined that Colorado's long-arm statute, Colo. Rev. Stat. § 13-1-124 (2018), is coextensive with due process requirements, Keefe v. Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267, 1270 (Colo. 2002), the inquiry is thus simplified into one basic question: whether the exercise of personal jurisdiction comports with the requirements of due process under the Fourteenth Amendment to the United States Constitution. AST Sports Sci., Inc. v. CLF Distrib. Ltd., 514 F.3d 1054, 1057 (10th Cir. 2008).

         However, even if this test is met, a court must still consider whether “the exercise of personal jurisdiction over the defendant offends traditional notions of fair play and substantial justice.” OMI Holdings, 149 F.3d at 1091. In this inquiry the court considers: (1) the burden on the defendant, (2) the forum state's interest in resolving the dispute, (3) the plaintiff's interest in receiving convenient and effective relief, (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental social policies. Id. at 1095.

         To determine whether this court may exercise specific jurisdiction over Olympus Medical, this court looks to whether its contacts with this forum associated with the action at hand is sufficient for it to be haled into court in this District: “(a) whether the plaintiff has shown that the defendant has minimum contacts with the forum state; and, if so, (b) whether the defendant has presented a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” Old Republic Ins. Co. v. Cont'l Motors, Inc., 877 F.3d 895, 904 (10th Cir. 2017).[4] When a corporation sells products that reach the forum and form the basis for the litigation where personal jurisdiction is challenged, courts apply the “stream of commerce” test. J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873, 881-82 (2011). Broadly speaking, there are two interpretations of the stream of commerce test. The most permissive test requires only that the defendant place an object into the stream of commerce with the awareness that the product is being marketed in the forum state, even if the defendant does not undertake any action specifically designed to avail itself of the forum. See Asahi Metal Indus. Co., Ltd. v. Sup. Court, 480 U.S. 102, 117-21 (1987) (Brennan, J., concurring). The more demanding test requires that the defendant undertake an action purposefully directed toward the forum state; mere awareness that a third party supplier was marketing and selling the product in the forum is insufficient without such action. See Id. at 111-12 (plurality).

         The United States Supreme Court addressed the stream of commerce test most recently in J. McIntyre Mach, Ltd. v. Nicastro, 564 U.S. 873 (2011). In that case, the Court reversed the New Jersey Supreme Court's exercise of jurisdiction in a plurality opinion. Id. at 887. Defendant was a foreign corporation who sold products in the United States through an intermediary. Id. at 886. One of the products ended up in New Jersey and injured Plaintiff, who sued. Id. at 878. Although defendant sold products in the United States, there was no allegation that defendant sold, marketed, or shipped products specifically in or to the forum, New Jersey. Id. J. McIntyre simply sold the machines to an American distributor it did not control, at least one of which ended up in New Jersey and harmed plaintiff. Id. “[A] defendant may in an appropriate case be subject to jurisdiction without entering the forum . . . where manufacturers or distributors ‘seek to serve' a given State's market.” Id. at 882 (quoting World-Wide Volkswagen v. Woodson, 444 U.S. 286, 295 (1980)). The fundamental question is whether the defendant's activities manifest an intention to submit to the power of a sovereign. Id. at 881. In other words, the defendant must “purposefully avail itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Id. at 882 (quotations and citations omitted).

         The Tenth Circuit discussed the competing formulations of the stream of commerce test in Monge v. RG Petro-Machinery (Group) Co. Ltd., 701 F.3d 598 (10th Cir. 2012), but did not adopt a single test. Id. at 620 (stating that there was no personal jurisdiction under either test). Nevertheless, the Circuit made clear that “specific jurisdiction must be based on actions by the defendant and not on events that are the result of unilateral actions taken by someone else.” Id. at 618. Absent explicit guidance from the Tenth Circuit, courts in this Circuit have handled the lack of clear authority from the Supreme Court in different ways.[5]

         A. Affiliated Entities and Personal Jurisdiction

         Plaintiff contends that this court may properly exercise personal jurisdiction over Olympus Medical because it worked “in tandem” with Olympus America and OCA. See [#24]. But courts are not free to disregard corporate formalities, and for purposes of personal jurisdiction “a holding or parent company has a separate corporate existence and is treated separately from the subsidiary in the absence of circumstances justifying disregard of the corporate entity.” Quarles v. Fuqua Indus., Inc., 504 F.2d 1358, 1362 (10th Cir. 1974); see also Good v. Fuji Fire & Marine, Ins. Co. Ltd., 271 Fed.Appx. 756, 759 (10th Cir. 2008).

         In Quarles, the Tenth Circuit held that even a wholly owned subsidiary was insufficient to impute the subsidiary's contacts to its parent corporation. Id. at 1360, 1364. Similarly, in Good the Tenth Circuit came to the same conclusion when the roles were reversed-a company that held 20% of the defendant's stock could not have its contacts imputed to the defendant for purposes of personal jurisdiction. Good¸ 271 Fed.Appx. at 759. Good mirrored the Tenth Circuit's prior decision in Benton v. Cameco Corp., 375 F.3d 1070, 1080-81 (10th Cir. 2004) where the plaintiff's claim of jurisdiction was the same but the subsidiary was wholly owned. See also Pennington v. Kan. Univ. Med. Ctr. Research Inst., 17-1152-JWB, 2018 WL 2388898, at *3 (D. Kan. 2018) (holding the court lacked personal jurisdiction over the parent of a subsidiary in the absence of “any circumstances that could justify disregarding the corporate entity”).

         Accordingly, this court is not free to disregard corporate formalities when assessing whether it may properly exercise personal jurisdiction over a defendant. Rather, it must look to Olympus Medical's specific contacts not with the United States, but with Colorado.

         B. Consent

         Plaintiff also argues that Olympus Medical has consented to jurisdiction in this forum, citing other cases across the nation where it has consented to jurisdiction. [#24 at 7]. A party may consent to a court's exercise of personal jurisdiction even if the court would not otherwise have personal jurisdiction. Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 703 (1982). However, such a consent is limited in its effectiveness to the case in which the party so consented. A consent in one case does not affect the propriety of a court's exercise of personal jurisdiction in another case, even if related and even if in the same forum. See Alkanani v. Aegis Def. Svcs., LLC, 976 F.Supp., 976 F.Supp.3d 13, 37 (D.D.C. 2014).

         C. Jurisdictional Discovery

         In the alternative, Plaintiff seeks jurisdictional discovery to establish Olympus Medical's relevant contacts with this forum. [#24 at 18]. “When a defendant moves to dismiss for lack of jurisdiction, either party should be allowed discovery on the factual issues raised by that motion. Grynberg v. Ivanhoe Energy, Inc., 666 F.Supp.2d 1218, 1227 (D. Colo. 2009) (quoting Budde v. Ling-Temco-Vought, Inc., 511 F.2d 1033, 1035 (10th Cir. 1975)). Whether to allow jurisdictional discovery is within “the broad discretion” of the trial court. Id. The court abuses its discretion if the denial of limited discovery results in prejudice to a litigant. Sizova v. Nat'l Inst. of Stds. & Tech., 282 F.3d 1320, 1326 (10th Cir. 2002). “Prejudice is present where ‘pertinent facts bearing on the question of jurisdiction are controverted . . . or where a more satisfactory showing of the facts is necessary.'” Sizova, 282 F.3d at 1326. To obtain jurisdictional discovery, a plaintiff must “present a sufficient factual predicate for the establishment of personal jurisdiction.” Gordon Howard Assocs. v. Lunareye, Inc., No. 13-cv- 01829-CMA-MJW, 2013 WL 5637678, at *4 (D. Colo. 2013) (citing St. Paul Travelers Cas. & Sur. Co. of Am. v. Guar. Bank & Tr. Co., 2006 WL 1897173, at *4 (D. Colo. 2006)).

         II. Failure to State a Claim under Rule 12(b)(6)

         Under Rule 12(b)(6) a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). A plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009); see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (explaining that plausibility refers “to the scope of the allegations in a complaint, ” and that the allegations must be sufficient to nudge a plaintiff's claim(s) “across the line from conceivable to plausible.”). To state a claim that is plausible on its face, a complaint must “sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).

         The court has subject matter jurisdiction over this case because the parties are completely diverse and the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332(a). Therefore, the court applies Colorado law when evaluating whether Plaintiff's state law claims state a claim under Rule 12(b)(6). Rancho Lobo, Ltd. v. Devargas, 303 F.3d 1195, 1200 (10th Cir. 2002). Absent clear guidance from the Colorado Supreme Court, a federal court exercising diversity jurisdiction must make an Erie guess as to how that court would rule. Pehle v. Farm Bureau Life Ins. Co., 397 F.3d 897, 901 (10th Cir. 2005) (“Because Wyoming has not directly addressed this issue, this court must make an Erie-guess as to how the Wyoming Supreme Court would rule.”). In making an Erie guess, courts look to decisions of the state court of appeals as strongly persuasive, if not governing, authority as to how the state supreme court would rule. Koch v. Koch Indus., Inc., 203 F.3d 1202, 1230 (10th Cir. 2000) (“Furthermore, this court must follow any intermediate state court decision unless other authority convinces us that the state supreme court would decide otherwise.” (formatting altered) (quoting Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir. 1984)); see also, e.g., U.S. ex rel. Sun Constr. Co. v. Torix Gen. Contractors, LLC, No. 07-CV-01355-LTB-MJW, 2011 WL 841277, at *1 (D. Colo. 2011).

         III. Pleading Special Matters Under Rule 9(b)

         When a plaintiff alleges fraud or mistake, Federal Rule of Civil Procedure 9(b) requires that the plaintiff “state with particularity the circumstances constituting fraud or mistake.” The rule's purpose is to “to afford [a] defendant fair notice” of a plaintiff's claims and the factual grounds supporting those claims, George v. Urban Settlement Svcs., 833 F.3d 1242, 1255 (10th Cir. 2016) (quoting Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997)), such that the defendant is provided the “minimum degree of detail necessary to begin a competent defense.” Fulghum v. Embarq Corp., 785 F.3d 395, 416 (10th Cir. 2015). Rule 9(b) does not require any particularity in connection with an averment of intent, knowledge or condition of mind, rather it simply refers to only the requirement that a plaintiff identify the circumstances constituting fraud. Schwartz, 124 F.3d at 1252.

         Put simply, Rule 9(b) requires that a complaint “set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.” Id. (quoting In re Edmonds, 924 F.2d 176, 180 (10th Cir. 1991)). When plaintiff brings a claim against multiple defendants, Rule 9(b) obliges a plaintiff to specify the manner in which each defendant participated. Brooks v. Bank of Boulder, 891 F.Supp. 1469, 1477 (D. Colo. 1995); see also Lillard v. Stockton, 267 F.Supp.2d 1081, 1094 (D. Kan. 2003) (“[W]here fraud is alleged against multiple defendants, blanket allegations of fraud couched in language such as ‘by the defendants' are insufficient. Instead, the specifics of the alleged fraudulent activity of each defendant must be set forth.”).

         Rule 9(b) clearly applies to intentional misrepresentation and fraud, but the law is unsettled on whether it applies to a claim of negligent misrepresentation. Compare Conrad v. The Educ. Res. Inst., 652 F.Supp.2d 1172, 1183 (D. Colo. 2009) (“Thus, a claim for negligent misrepresentation should not be governed by the pleading standard set forth in Rule 9(b).”) and Denver Health & Hosp. Auth. v. Beverage Distributors Co., LLC, 843 F.Supp.2d 1171, 1177 (D. Colo. 2012) (“Rule 9(b) does not apply to the negligent misrepresentation claim before me. The crux of the claim . . . . rings not of fraud but negligence.”), with Gunningham v. Standard Fire Ins. Co., No. 07-cv-02538-REB-KLM, 2008 WL 4377451, at *2 (D. Colo. 2008) (“I conclude that the particularity requirement is applicable to the negligent misrepresentation claim. In this context, negligence is a type of mistake and Rule 9(b) concerns allegations of fraud or mistake.”). In determining whether the heightened pleading requirements of Rule 9(b) apply, courts look not to a bright-line rule, but to the substance of the underlying allegations to determine if it is essentially a claim of fraud or mistake or a claim of pure negligence.

         The court finds that Rule 9(b) applies to Plaintiff's negligent misrepresentation claim. Plaintiff's claim of negligent misrepresentation is rife with allegations of willful misconduct. So much so that it scarcely resembles a claim for negligence at all; absent the heading “Fraud- Negligent Misrepresentation, ” the court would likely not have interpreted the claim as a negligence claim. See [#1 at ¶ 68] (“Defendants made false representations . . . . Defendants falsely represented that the Q180V Scope would be disinfected and safe for subsequent use . . . . Defendants made those false representations in an effort to encourage consumers to purchase and use the Q180V Scope for medical procedures, so Defendants could profit.”); [id. at ¶ 71] (“Defendants intended medical professionals, including Plaintiff's physicians, and patients to rely on the Defendants' the important material representations . . . .”). Because the negligent misrepresentation claim alleges knowing material misrepresentations, the court finds that the heightened pleading standards of Rule 9(b) apply. Cf. Conrad, 652 F.Supp.2d at 1183 (Rule 9(b) does not apply when the negligent misrepresentation claim “is one of negligence, rather than of intent to mislead”).


         I. Personal Jurisdiction ...

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