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Acumed LLC v. Advanced Surgical Services

March 20, 2009

ACUMED LLC, A DELAWARE LIMITED LIABILITY CORPORATION; SURGICAL RESOURCES OF PENNSYLVANIA, INC.
v.
ADVANCED SURGICAL SERVICES, INC.; ROBERT MORRIS, AN INDIVIDUAL, APPELLANTS



On Appeal from the United States District Court for the Eastern District of Pennsylvania, (D.C. Civ. No. 05-02711), Honorable Juan R. Sanchez, District Judge.

The opinion of the court was delivered by: Greenberg, Circuit Judge.

PRECEDENTIAL

Argued December 2, 2008

BEFORE: AMBRO and GREENBERG, Circuit Judges, and RODRIGUEZ,*fn1 District Judge.

OPINION OF THE COURT

I. INTRODUCTION

This matter comes on before this Court on an appeal from a final order entered in the District Court on May 21, 2007, accompanying an opinion dated May 18, 2007, as well as from a separate judgment for compensatory and punitive damages in this case involving claims and counterclaims among parties in the surgical implant business. See Acumed LLC v. Advanced Surgical Servs., Inc., Civ. No. 05-2711, 2007 WL 1500051 (E.D. Pa. May 18, 2007). The District Court entered the order and judgment from which appellants, Advanced Surgical Services, Inc. ("Advanced") and Robert C. Morris ("Morris"), have taken their appeal, in favor of appellees Acumed LLC ("Acumed") and Surgical Resources of Pennsylvania, Inc. ("Surgical").*fn2 Inasmuch as Morris is the president and sole owner of Advanced, as a matter of convenience we usually refer to appellants singularly as "appellant." In addition, appellant filed an earlier appeal from a March 22, 2007 order holding it in contempt of court and ordering it to pay a counsel fee that appellant characterizes as a fine. The clerk of this Court consolidated the appeals by order of May 31, 2007, and we address both in this opinion. The May 21, 2007 order, as well as providing for damages, entered an injunction against appellant and denied its post-trial motions in which it sought a judgment as a matter of law under Fed. R. Civ. P. 50(b) or, in the alternative, an order amending the judgment and a remittur of damages, a new trial, and orders assessing attorneys' fees and sanctions against appellees.

Appellant challenges (1) the denial of its motion for judgment as a matter of law on appellees' claims; (2) the award of damages, particularly punitive damages, against it; (3) the grant of partial summary judgment in favor of appellees on appellant's counterclaim for abuse of process, unfair competition, and defamation; (4) the grant of a judgment as a matter of law in favor of appellees on appellant's counterclaim for tortious interference with contractual relationships; (5) certain of the District Court's evidentiary rulings; (6) the denial of appellant's application for attorneys' fees; (7) the grant of injunctive relief against it; and (8) the order holding appellant in contempt of court.*fn3 Though both appellees prevailed only in certain aspects of this case, neither cross-appeals from any disposition in the District Court adverse to it.

For the reasons we discuss below, we conclude that the application of legal principles required the District Court to have granted appellant's post-trial Rule 50(b) motion seeking to set aside the jury's verdict in favor of appellees on a tortious interference with contractual relationship claim that appellees pled against appellant and attempted to prove at trial.*fn4 Therefore, we will reverse the District Court's determination that appellant was not entitled to judgment as a matter of law on that claim and reverse, as well, the judgment for compensatory and punitive damages, as the jury predicated the damages verdict solely on the tortious interference claim. Furthermore, we will reverse the order for the injunction against appellant inasmuch as the District Court predicated the injunction on the jury's liability finding on the tortious inference claim, but we will affirm all of the District Court's remaining orders. Inasmuch as we are not remanding the case for a new trial or other proceedings, our disposition on this appeal will bring this litigation to a close.

II. BACKGROUND

A. Facts

To the extent that appellant challenges the order granting partial summary judgment against it, we state the facts most favorably to it, but to the extent that the appeal challenges the jury's verdict, we state the facts on any disputed issue most consistently with the verdict. See Johnson v. Campbell, 332 F.3d 199, 204 (3d Cir. 2003).

Acumed is a manufacturer of surgical implants and related devices, and appellant and Surgical are in the business of distributing surgical implants and other medical devices for various manufacturers, including Acumed, to hospitals and surgeons. Acumed and Morris began a relationship in 1996 when Joe Richioni, then Acumed's authorized sales representative for eastern Pennsylvania, retained Morris as an independent contractor to sell Acumed's products. In 1998, due to Acumed's dissatisfaction with Richioni's performance, Morris and two other individuals formed a "loose partnership" called RMW Orthopedics ("RMW") that contracted with Acumed to take over Richioni's territory.*fn5 App. at 2955. At that time Acumed and RMW signed a Manufacturer's Representative Agreement ("RMW Agreement") designating RMW as Acumed's exclusive representative for its products in eastern Pennsylvania. Morris became Acumed's authorized representative for the greater Philadelphia area. The RMW Agreement contained a provision that prevented RMW from making unauthorized disclosure of Acumed's confidential information. The non-disclosure provision provided for the award of attorney's fees to the prevailing party in the event of litigation related to the provision.

In late 1999, its "loose partners" dissolved RMW, following which Acumed contracted with Morris's company, Advanced, for it to become Acumed's exclusive sales representative in southeastern Pennsylvania. Appellant and Acumed differ, however, on the nature of their sales representative agreement. Ordinarily the written terms of an agreement should be clear, though their meaning may be in dispute, but the situation here varies from the ordinary because Acumed presented evidence explaining the terms of its agreement with Advanced, but did not produce a written contract between Advanced and Acumed. For its part, appellant produced a contract purportedly evidencing the agreement Advanced and Acumed reached, but neither party had signed that version of the contract, and the parties' versions of the agreement significantly varied. Nevertheless, we will refer to the agreement, as uncertain as its terms may be, between Advanced and Acumed as the "Advanced-Acumed Agreement."

Throughout the trial and this appeal, Acumed has maintained that Advanced was its commissioned sales representative under an agreement identical to the earlier RMW Agreement, and, in that capacity, placed orders from surgeons and hospitals with Acumed, who then shipped the product directly to its purchaser. Nevertheless, even as a sales representative appellant may have had Acumed's products on hand as consignment inventory for direct delivery to an ordering surgeon or hospital. In any event, regardless of how appellant or Acumed filled the order, when a purchaser paid Acumed on an invoice for a sale that appellant had obtained, Acumed paid appellant a commission.

In contrast to Acumed's version of their contractual relationship, appellant argued and still argues that its contract with Acumed was a "hybrid" agreement under which it acted both as a sales representative and a stocking distributor. Appellant contended that in its role as a stocking distributor, it purchased products directly from Acumed for resale to hospitals or surgeons. Appellant further alleged that under the terms of the Advanced-Acumed Agreement, if Acumed terminated the agreement, Acumed would pay a "buy-out" fee to appellant. Appellant explains that it sought "buy-out" fees from the manufacturers it represented to compensate it for its expenses in promoting a manufacturer's product if the manufacturer terminated appellant as a representative and thereby deprived appellant of the opportunity to earn further commissions on the sales of the manufacturer's products. Appellant believed that when a manufacturer terminated its distributorship it should pay appellant such a fee, inasmuch as appellant would have promoted the manufacturer's products while representing the manufacturer and there could be further sales of a manufacturer's products attributable to appellant's efforts after a manufacturer terminated appellant as a sales representative. It appears that sometimes a buy-out fee became payable when another company acquired the manufacturer that appellant had represented and appellant then lost the account. Indeed, appellant sets forth in its brief that Acumed "was bought out by a conglomerate in around 2000." Appellant's br. at 11 n.4.*fn6

In January 2000, during the time of the Advanced-Acumed relationship, appellant sometimes bought Acumed products under the name Allied Surgical ("Allied"), an unincorporated entity not to be confused with appellee Surgical Resources of Pennsylvania or appellant Advanced Surgical Services. Appellant contended that it formed Allied so that it could sell products in hospitals that had not approved Acumed as a vendor. On the other hand, Acumed contended that it believed during the Advanced-Acumed relationship that Allied was an entity separate from and independent of appellant. Moreover, it contended that Morris formed Allied in order to purchase Acumed products secretly for resale on his own account to hospitals and surgeons.

In January 2001, Acumed, citing what it believed was appellant's poor sales performance, terminated the Advanced-Acumed Agreement. Morris testified that after the termination of the contract he returned the inventory that appellant had acquired in its sales representative role from Acumed and attempted to sell back to Acumed inventory it had acquired as a stocking distributor, but Acumed refused to buy back the inventory. Morris also testified that after Acumed terminated Advanced's contract, appellant continued to sell Acumed products from 2001 to 2004 in eastern Pennsylvania and New Jersey as well as in areas beyond its former exclusive territory under the Advanced-Acumed Agreement. According to appellant, the sales, however, were sporadic, and appellant only sold Acumed products when customers specifically requested them. Morris estimated that appellant made approximately 25 sales of Acumed products to ten different customers during the three-year period.

In September 2002, Surgical and Acumed entered into an agreement designating Surgical as Acumed's exclusive sales agent in eastern Pennsylvania and southern New Jersey; Surgical thus took over what had been Advanced's territory. It is, of course, evident that there was a hiatus between the periods in which appellant and Surgical served as sales representatives for Acumed.

Sometime after Surgical became an Acumed sales representative, an employee at Bloomsburg Hospital in Pennsylvania advised Fred Zullo, then the Vice President of Surgical, that a representative from another company had indicated to the hospital staff that he could provide Acumed products. This information led Acumed to send a memorandum dated October 9, 2003, to its customers in eastern Pennsylvania and New Jersey informing them that Surgical was its only authorized representative in that territory and Acumed would not extend its warranty to its products sold by anyone other than its authorized sales representative.

In December 2004, Chad Casey, a Surgical sales representative, brought Acumed implants and instruments to Nazareth Hospital for use in a surgical procedure. When Casey arrived at Nazareth, he discovered that another person already had delivered a set of Acumed implants to Nazareth for the procedure.

At the trial, Ryan Crognale, a sales representative for appellant, explained his view of the events that Casey described at Nazareth Hospital. Crognale testified that Morris directed him to deliver the implants to Nazareth and to attend the surgery. He then stated that after his earlier delivery of Acumed implants, he returned to the hospital and saw Casey in the operating room and observed that the physician doing the procedure was "not using my stuff anyway." App. at 2158. Consequently, Crognale took the tray of instruments he previously had delivered and left the operating room. Thus, it appears that the physician performing the procedure used materials Acumed supplied through Surgical, its authorized representative.

As Crognale was leaving the surgery center, he encountered Casey, and an argument between the two representatives ensued. Appellant contends that during the argument Casey loudly accused Crognale of illegally selling Acumed inventory, an incident that appellant contends led Dr. Robert Frederick, a doctor at Nazareth, to stop doing business with it. Moreover, appellant contends that because of Dr. Frederick's connection with a large group of physicians in Philadelphia, the confrontation was a factor in a decision by Jefferson Hospital in Philadelphia to exclude Morris from its operating theater for one year. As a result of the incident at Nazareth Hospital, Acumed sent another notice to its customers stating that Surgical was its only authorized representative in eastern Pennsylvania and southern New Jersey.

B. Procedural History

Appellees filed the complaint in this action against appellant in the District Court charging it with violation of the Lanham Act, 15 U.S.C. § 1125, violation of Pennsylvania's Anti-Dilution statute, 54 Pa. Cons. Stat. Ann. § 1124 (West 1996), unfair competition, breach of a non-disclosure provision in the Advanced-Acumed Agreement, conversion, unjust enrichment, and tortious interference with existing or prospective contractual relationships. Appellees sought compensatory and punitive damages and an injunction precluding appellant from making what Acumed regarded as unauthorized sales of its products. Later, when appellees claim they just had become aware that Morris had formed Allied, appellees amended their complaint to include a charge of intentional misrepresentation. The amendment to the complaint asserted that Acumed had made sales to Allied believing, on the basis of Morris's representations, that Allied was an entity separate from and independent of Advanced and was "wholly distinct from" appellant whereas, in fact, "Allied was the alter ego of Advanced." App. at 346. Acumed alleged that but for Morris's misrepresentations it would not have sold its products to Allied. Appellees brought all of their claims under state law except for the Lanham Act claim which, of course, was a federal law claim.

Appellees asserted their claims for tortious interference with contractual relationships on two theories. First, appellees alleged that appellant tortiously interfered with Acumed's and Surgical's contractual relationship providing for Surgical within its territory to be Acumed's sole authorized dealer by making false and misleading statements regarding Advanced's status. Second, Acumed alleged that appellant's sale of Acumed products and false and misleading statements tortiously interfered with Surgical's and Acumed's relationships with existing and prospective customers. Appellees charged in their Lanham Act claim that appellant made false and misleading statements to hold itself out as an authorized representative of Acumed in southeastern Pennsylvania and New Jersey.

Appellant filed a four-count counterclaim against appellees. In counts I, II, and III appellant charged that Acumed breached its contract with appellant by not providing timely notice of termination of their relationship and by failing to pay the contractually required buy-out fee that became due to appellant when Acumed terminated their relationship. In addition, appellant charged that Acumed's failure to pay the buy-out fee violated the Pennsylvania Commissioned Sales Representatives statute, 43 Pa. Cons. Stat. Ann. §§ 1471 et seq. (West 1991). In count IV ("counterclaim IV") appellant alleged that Acumed and Surgical "...converted property belonging to Advanced, defamed and disparaged Advanced maliciously and falsely, intentionally interfered with Advanced's contractual and business relationships and competed unfairly against Advanced." App. at 103.

After completion of discovery, appellant filed a motion to dismiss or, in the alternative, for summary judgment, and the parties submitted letter briefs addressing summary judgment issues.*fn7 After hearing oral arguments on the letter briefs on February 23, 2007, the District Court signed an order on March 6, 2007, entered on March 7, 2007, which dismissed counterclaim IV insofar as it alleged that appellees were liable to appellant for instituting groundless litigation, defamation, and unlawful restraint of trade. But the District Court allowed appellant to proceed with counterclaim IV to the extent that it alleged that appellees were liable for tortious interference with one of its contracts, and it also permitted appellant to proceed on its conversion claims. The trial commenced on March 12, 2007, and on the same day, the Court granted a motion appellees made in limine to preclude appellant from introducing evidence of defamation.

On March 19, 2007, at the conclusion of appellant's testimony, Surgical moved for a judgment as a matter of law with respect to the remaining claims in counterclaim IV, and both appellees moved for judgment as a matter of law on other portions of the case. The following day the District Court entered an order granting Surgical's motion against appellant with respect to counterclaim IV but reserving judgment on the other aspects of appellees' motions for judgment, including the tortious interference with contractual relationships, conversion, and unfair competition claims. Ultimately, however, the Court granted judgment as a matter of law dismissing certain of appellant's claims that had survived the earlier dismissal of portions of counterclaim IV.

The jury returned a verdict on March 21, 2007, finding for appellees on their count against appellant for tortious interference with existing or prospective contractual relationships with appellees' customers. The jury, however, rejected appellees' claim that appellant had tortiously interfered with Acumed's and Surgical's contractual relationship between themselves and also rejected appellees' other claims, including appellees' Lanham Act claims. The jury also found against appellant on the portions of its counterclaims that had survived the District Court's dismissals, i.e., the claims predicated on breach of contract and violation of the Pennsylvania Commissioned Sales Representatives statute. The jury awarded $20,000 in compensatory damages to Surgical and $0 in compensatory damages to Acumed on the tortious interference claim but found that both Acumed and Surgical were entitled to punitive damages. Thus, by the time the jury returned its verdict, either the Court or the jury had rejected all the parties' claims, except that appellees had obtained a verdict in their favor on the count for tortious interference with existing or prospective contractual relationships, though not on interference with their own relationship. Nevertheless, the Court did not discharge the jury on March 21, 2007, when it returned its initial verdict, inasmuch as the jury had not determined the quantum of punitive damages.

In anticipation of proceedings to determine the quantum of punitive damages, the Court required appellant to produce financial documents relating to its net worth.*fn8 On March 22, 2007, when appellant failed to produce some of the documents, the District Court entered an order holding it in civil contempt of court and ordering it to pay appellees' attorneys a fee of $1350. The Court also granted appellees access to appellant's computer hard drive, and allowed appellees to cross-examine Morris about the missing documents. On March 27, 2007, appellant filed a notice of appeal from the District Court's contempt order.

On March 23, 2007, the District Court, two days after the jury returned its original verdict, allowed the parties to make arguments to the jury on the question of punitive damages. At that time the Court instructed the jury that to award punitive damages it "must return a verdict for [Acumed] in a nominal sum, such as one dollar." App. at 3494. The jury then returned a verdict awarding $1 in nominal damages to Acumed and punitive damages to both Acumed and Surgical Resources in the amount of $100,000 each.

Appellant filed post-verdict motions requesting entry of a judgment as a matter of law in its favor under Rule 50(b), or, in the alternative, entry of an amended judgment, a remittur of damages, and/or a new trial. In addition, appellant sought attorneys' fees under the Lanham Act and the Advanced-Acumed Agreement even though Acumed, but not appellant, contended that the Advanced-Acumed Agreement followed the earlier RMW Agreement and consequently contained a non-disclosure provision providing for a counsel fee in the event of litigation regarding it. Moreover, appellant requested that the District Court impose sanctions against appellees. On the other hand, appellees filed a post-trial motion seeking an order for an injunction barring appellant from selling Acumed products. The District Court denied appellant's motions but granted appellees' request for an injunction against appellant. Accordingly, the District Court proceedings resulted in appellees recovering a judgment against appellant for compensatory and punitive damages for tortious interference with existing or prospective contractual relationships, and with the Court entering an injunction barring appellant from selling Acumed's products. No party, however, obtained any other substantive relief, though, as we have indicated, the Court made an award of attorneys' fees to appellees on the contempt of court order. Appellant then filed its second notice of appeal, which it later amended. Thus, appellant has appealed twice, but appellees, though only partially successful, have not cross-appealed.

III. JURISDICTION AND STANDARDS OF REVIEW

The District Court had jurisdiction over the Lanham Act claims pursuant to 28 U.S.C. §§ 1331 and 1338(a) and supplemental jurisdiction over all the remaining claims under 28 U.S.C. § 1367, as they were under state law and the Court did not have diversity of citizenship jurisdiction.

Courts of appeals have jurisdiction under 28 U.S.C. § 1291 over "appeals from all final decisions of the district courts." As we have indicated, appellant filed two distinct notices of appeal, the first after the District Court entered its contempt order and the second, subsequently amended, after the District Court ruled on the parties' post-trial motions.

When appellant filed its first notice of appeal, the case still was pending in the District Court, a procedural posture that regularly presents a question whether a court of appeals has jurisdiction over an appeal. We need not determine, however, whether the contempt of court order was final and appealable under section 1291, or on another basis, when appellant filed its appeal from that order, because the District Court subsequently resolved all the outstanding issues and, on any theory, the case in all of its aspects then became final in the District Court and thus became appealable. Therefore, the contempt of court order, if not appealable earlier, became appealable at that time. See Aluminum Co. of Am. v. Beazer East, Inc., 124 F.3d 551, 557 (3d Cir. 1997) ("Even if the appeals court ...


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