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Synthes, Inc., Synthes Usa Hq, Inc., Synthes Usa, LLC, Synthes Usa v. John P. Marotta and Emerge Medical

March 6, 2012

SYNTHES, INC., SYNTHES USA HQ, INC., SYNTHES USA, LLC, SYNTHES USA SALES, LLC, AND SYNTHES USA PRODUCTS, LLC, PLAINTIFFS,
v.
JOHN P. MAROTTA AND EMERGE MEDICAL, INC., F/K/A EMERGE SURGICAL, INC., DEFENDANTS.



The opinion of the court was delivered by: Buckwalter, S.J.

MEMORANDUM

Currently pending before the Court is the Motion of Plaintiffs Synthes, Inc., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC (collectively "Synthes" or "Plaintiffs") for Leave to Amend the Complaint. For the following reasons, the Motion is granted.

I. FACTUAL BACKGROUND*fn1

A. General Information About Synthes and Its Efforts to Protect Confidential Information

Plaintiff Synthes is a worldwide leader in the medical device industry, marketing and selling medical implant devices, including plates, screws, rods, biomaterials, instrumentation, and other devices for orthopedic surgery. (Compl. ¶ 15.) Its customers include hospitals, hospital employees and directors, and physicians together with their employees and staff nurses. (Id. ¶ 16.)

Synthes markets and sells its products through a sales force comprised of Regional Sales Consultants and Associate Sales Consultants. (Id. ¶ 18.) These individuals report to Regional Managers, are assigned to specific territories within regions, and are generally paid on a commission basis. (Id.) The Regional Managers are responsible for the maintenance and growth of sales in the territories within their regions, and are also responsible for hiring, training, and management of Sales Consultants. (Id. ¶ 19.) They are often compensated based on sales within their regions and may also receive base compensation in addition to commissions. (Id.)

Because Synthes invests millions of dollars annually to develop its technology, systems, products, and strategies, and to educate and train its employees, it requires all employees to sign an Employee Innovation and Non-Disclosure Agreement ("Non-Disclosure Agreement"). (Id. ¶ 20.) In addition, employees hired in sales, marketing, and product development capacities must sign a Confidentiality, Non-Solicitation, and Non-Competition Agreement ("Non-Competition Agreement"). (Id. ¶ 21.) These Agreements, in part, protect against the disclosure of confidential information, prohibit solicitation of Synthes's employees and Synthes's existing or prospective customers, and prohibit activities during and after employment with or on behalf of any individual or entity that competes or intends to compete with Synthes, subject to geographic and temporal limitations. (Id. ¶¶ 20, 21.) In exchange for the employees' execution of these Agreements, Synthes provides its employees with proprietary information, customer relationships, and valuable training programs. (Id. ¶ 22.) Synthes takes other measures to protect these interests by requiring the return of various information upon the employees' separation from Synthes's employment. (Id. ¶¶ 23--24.)

B. Plaintiff John Marotta's Employment With Synthes

Defendant, John P. Marotta, applied to Synthes on April 1, 2004, without any background in the orthopedic medical device industry. (Id. ¶ 26.) On June 21, 2004, he accepted a position as a Sales Consultant in Synthes's Trauma division, working in the Desert Valley region. (Id. ¶ 27.) Prior to commencing work, Marotta signed both the Non-Competition Agreement and Non-Disclosure Agreement, each dated June 25, 2004. (Id. ¶¶ 28--29.) At the same time, Marotta was given Synthes's Employee Policy Manual and, later, the amended Employee Policy Manual. (Id. ¶ 30.)

At the start of Marotta's employment, Synthes provided him with training concerning the trauma industry, product segment, human anatomy, the treatment of traumatic fractures, and the application of trauma products in the surgical environment. (Id. ¶ 31.) As a Sales Consultant in Arizona, Marotta received access to extensive customer information as well as substantial Synthes confidential information. (Id. ¶ 32.) He was highly successful and highly compensated and, as a result, Synthes offered him a promotion to Regional Manager in 2007. (Id. ¶¶ 33--34.) On February 1, 2008, Marotta began his tenure as a Regional Manager, prior to which time he reviewed and executed a second Non-Competition Agreement. (Id. ¶¶ 35--36.) Upon becoming a Regional Manager in Colorado, Marotta's responsibilities substantially increased, and he was responsible for identifying, developing, and implementing strategic territory expansion opportunities; evaluating and developing Sales Consultants' individual business plans; and leading sales strategies and activities for all of Synthes's new product introductions. (Id. ¶ 37.) Due to his good service, Marotta's compensation increased progressively. (Id. ¶ 38.) In addition, he was enrolled at an MBA program, at Synthes's expense, subject to his agreement to repay Synthes for those tuition costs in the event he left the company. (Id. ¶ 39.) Throughout his employment, Synthes entrusted Marotta with its most valuable customer contacts, goodwill, and business information, and introduced Marotta to existing and prospective customers in his regions. (Id. ¶ 40.) Further, it entrusted Marotta with information concerning, among other things, Synthes's marketing and sales strategies, product performance and development, expansion plans, pricing terms, contract information, and sales information. (Id. ¶ 41.) Finally, Synthes provided Marotta with specialized training on the technical aspects of Synthes's products. (Id. ¶ 42.)

Under the Non-Competition Agreements between Marotta and Synthes, Marotta agreed not to "disclose or communicate" Synthes's confidential and proprietary information "to any competitor or other third party" at any time during or after leaving Synthes's employ or to "use or refer to" such information "for any purpose . . . except as necessary for [him] to properly perform services for Synthes during [his] employment." (Id. ¶ 44.) Further, under the Non-Disclosure Agreement and his Non-Competition Agreements, Marotta agreed that any inventions, innovations, or technical or business ideas conceived or developed during his employment were the exclusive property of Synthes. (Id. ¶ 45.) In addition, Marotta's Sales Consultant Non-Competition Agreement specifically prohibited him from competing with Synthes, for a period of one year following the termination of his employment with Synthes, in the territories for which he was responsible either at that time or one year prior. (Id. ¶ 46.) It also contained a non-solicitation covenant prohibiting him, for a period of one year, from soliciting business from Synthes's customers within his territory in Arizona. (Id. ¶ 48.) Similarly, a covenant in his Regional Manager Non-Competition Agreement specifically prohibited him from competing with Synthes both during his employment and for a period of one year following the termination of his employment. (Id. ¶ 47.) It also contained a non-solicitation covenant, which applied to his region in Colorado. (Id. ¶ 49.) Aside from the foregoing covenants, both Non-Competition Agreements required Marotta to acknowledge both the availability and necessity of injunctive relief for a breach and his obligation to indemnify Synthes for any attorneys' fees and costs incurred in prosecuting violations of the Non-Competition Agreements. (Id. ¶ 50.) Further, both Agreements had choice of law provisions requiring the application of Pennsylvania law. (Id. ¶ 51.) According to the Complaint, Marotta was fully aware of his obligations to Synthes under these agreements both at the time he signed them and at the time of his resignation. (Id. ¶ 55.)

C. Marotta's Resignation from Synthes and Purported Violations of His Legal Obligations

On March 15, 2010, Marotta resigned from Synthes, effective April 15, 2010, without giving any indication of his future plans. (Id. ¶ 56.) By the time he resigned, however, Marotta had purportedly already formed his company, Emerge Surgical, Inc. ("Emerge") and planned to join it immediately. (Id. ¶ 57.) Leading up to his resignation, Marotta told his supervisor at Synthes that he would be working with his uncle, who was a board member of Center Healthcare (an entity that developed and operated rehabilitation facilities), and told Synthes Human Resources that he would be joining a non-competitor. (Id.) Despite a written demand and the well-known company policies, Marotta refused to reimburse Synthes for $35,058.32 in tuition payments it made during the term of his employment in connection with his MBA degree. (Id. ¶ 58.)

Synthes later learned that, in the summer of 2009, Marotta reached out to an accounting and consulting firm regarding possible names for an "orthopedic and medical device and healthcare consultant" company and had also researched companies that design corporate logos. (Id. ¶ 60). In addition, he also began to collaborate-well into the winter of 2009-with Zachary W. Stassen, who later became Emerge's Chief Operating Officer and a corporate director, and to seek out potential investors and lawyers. (Id. ¶¶ 61--62.) By December of 2009, Marotta began making filings with the United States Patent and Trademark Office ("PTO") relating to the name and logo for Emerge. (Id. ¶ 63.) On January 13, 2010-three months before his resignation from Synthes-Marotta met with Venture Law Advisors, who then filed Emerge's articles of incorporation with the Colorado Secretary of State. (Id. ¶ 64.)

Mr. Stassen, then purporting to be Emerge's Chief Operating Officer and a director, filed, on February 22, 2010, a Form Notice of Exempt Offering of Securities with the Securities Exchange Commission ("SEC"), indicating that Emerge intended to obtain $1.5 million in investment capital and already had obtained two investors for $200,000 just days before the filing. (Id. ¶ 66.) In that document, Mr. Stassen described Marotta, who was still employed by Synthes, as "a founder of the Issuer [Emerge] and will become an executive officer and director of [Emerge] upon completion of this offer" of securities. (Id. ¶ 66.) Indeed, Synthes avers that Marotta personally solicited Synthes's employees and customers during early 2010 concerning, at a minimum, their willingness to invest in Emerge. (Id. ¶ 67.) On June 23, 1010, Emerge Surgical, Inc. filed with the Colorado Secretary of State to change its name to Emerge Medical, Inc. (Id. ¶ 68.) Less than one month later, Marotta made a new trademark filing with the PTO for the name and logo of "Emerge Medical." (Id. ¶ 69.)

By November 2010, Emerge representatives began placing labels for reordering Synthes's surgical drill bits in Synthes Inventory Management System ("SIMS") cabinets, directing Synthes's customers to reorder surgical drill bits from Emerge instead. (Id. ¶ 70.) As a result, those Synthes customers have begun to order replacement drill bits directly from Emerge rather than from Synthes. (Id. ¶ 71.) Moreover, in a November 2010 510(k) submission, Emerge obtained clearance from the FDA for a "Cannulated Screw Fixation System" that is "substantially equivalent" to Synthes's cannulated screw system. (Id. ¶ 72.) Following Emerge's 510(k) approval, Emerge revised its website to indicate that it is now marketing its cannulated screw system. (Id. ¶ 73.) Synthes has also recently learned that Marotta joined forced with Charles Q. (Chaun) Powell, a former Synthes Sales Consultant assigned to Marotta's region in Colorado during Marotta's employment, and that Powell is actively soliciting Synthes's customers as Emerge's "Director of US Sales." (Id. ¶ 74.) The marketing material distributed by Powell represents that "Emerge Medical manufactures high quality orthopedic medical devices that you [Synthes's customers] are already familiar with at fair prices." (Id. ¶ 75.)

D. Commencement of Litigation

On March 4, 2011, Synthes initiated the current federal action against both John Marotta and Emerge Medical, Inc. Its lengthy Complaint set forth seven causes of action, as follows: (1) breach of fiduciary duty and/or duty of loyalty against Marotta (id. ¶¶ 79--85); (2) breach of contract under the Non-Competition and Non-Disclosure Agreements against Marotta (id. ¶¶ 86--105); (3) tortious interference with contract against Marotta and Emerge (id. ¶¶ 106--15); (4) aiding and abetting breach of fiduciary duty against Emerge (id. ¶¶ 116--22); (5) unfair competition against Marotta and Emerge (id. ¶¶ 123--34); (6) breach of contract or, in the alternative, unjust enrichment against Marotta (id. ¶¶ 135--42); and (7) fraud against Marotta. (Id. ¶¶ 143--46.) Five days later, Synthes moved for a preliminary injunction against the Defendants, as well as for an expedited discovery schedule. Defendants filed their responses on May 20, 2011.

Before the close of expedited discovery, the parties discussed the issue of Synthes's amendment of its Complaint to include additional claims against Marotta and Emerge, as well as the inclusion of additional party defendants. Nonetheless, Synthes agreed to proceed with the litigation in its current state in light of the pending preliminary injunction hearing. The hearing, however, was postponed on several occasions, and the Court directed the parties to attend a settlement conference before Magistrate Judge Rice, to no avail.

The Court then held a scheduling conference on December 20, 2011. At that time, Synthes advised Defendants and the Court of its intent to seek leave to amend its Complaint. After the conference, this Court issued an Order withdrawing Synthes's Motion for Preliminary Injunction and setting a schedule for discovery, pre-trial matters, and the start of the trial.

On January 11, 2012, Synthes filed the instant Motion for Leave to File an Amended Complaint. Defendants filed a Response in Opposition to this Motion on February 2, 2012, and Plaintiff submitted a Reply Brief on February ...


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