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Synthes, Inc. v. Gregoris

United States District Court, E.D. Pennsylvania

January 9, 2017

SYNTHES, INC., et al., Plaintiffs,
v.
DANIEL GREGORIS Defendant.

          MEMORANDUM

          GERALD J. PAPPERT, J.

         DePuy Synthes Sales, Inc., DePuy Orthopaedics, Inc. and Synthes, Inc. (collectively “Synthes”) sells medical implants and related products in a number of categories, including trauma. Globus, Inc., another medical device company, already competes with Synthes in the spine category. It is now entering the trauma market and will compete directly with Synthes in that area as well. Globus was founded in 2003 by two former high-ranking Synthes employees and the companies have been competitors in the marketplace and combatants in the courtroom ever since.

         Daniel Gregoris was a long-time Synthes employee who for many years served as an area vice president, reporting directly to the company's eastern vice president of sales. He left Synthes on October 31, 2016 to become the national head of sales for Globus's new trauma division. In 2014, however, Gregoris signed an employment agreement with Synthes. Part of that agreement prohibits Gregoris from, among other things, disclosing or using confidential Synthes information to which he had access if that information could disadvantage Synthes or advantage any Synthes competitor. The prohibition applies for eighteen months to any position in any location.

         Synthes seeks a preliminary injunction and to hold Gregoris to the terms of his 2014 contract. After thorough review of all the documentary evidence and careful consideration of the testimony throughout a three-day hearing, the Court grants Synthes's motion. Synthes has clearly shown an imminent risk that in his new position Gregoris will disclose or use confidential Synthes information which could disadvantage Synthes or advantage Globus. Synthes has accordingly met the heavy burden required to obtain the extraordinary remedy it seeks.

         I.

         A.

         Synthes grew from an affiliation of surgeons in Switzerland called the “AO” that wished to improve care for trauma patients in 1958. (Pl.'s Ex. 106.) Synthes designs, manufactures, markets and sells medical implants and instruments across several broad categories including joint reconstruction, trauma, spine, sports medicine and power tools. (Hrg. Tr., at 14:14-15:25; 25:18-26:16 (Gregoris Test.), ECF No. 31 (hereinafter “Hrg. Tr. 1”).) Synthes is the global market leader in orthopedic trauma products, which include implants and instruments used for surgical treatment of fractures, deformities and tumor diseases of long bones. (Pl.'s Ex. 1.) Synthes sells these products to a range of customers, key among them hospitals and surgeons. (Verified Compl. ¶¶ 23 & 24; Pl.'s Ex. 1.)

         Synthes's sales force is composed primarily of an extensive network of sales consultants around the country. Each sales consultant is responsible for driving sales by engaging in “direct customer service to the customer at the front line.” (Hrg. Tr. 1, at 17:8-9 (Gregoris Test.).) A sales consultant is responsible for a discrete territory-for example, a group of hospitals in a specific city. (Id., at 17:1-9 (Gregoris Test.); Pl.'s Ex. 31A (sealed).) Sales consultants report directly to one of approximately 100 regional managers. (Id. at 17:2-4; Hrg. Tr., at 22:13-16 (Gonzalez Test.), ECF No. 33 (hereinafter “Hrg. Tr. 2”).) Each regional manager reports to one of sixteen Area Vice Presidents (“AVPs”). (Pl.'s Ex. 31A (sealed); Hrg. Tr. 2, 12:4 (Gonzalez Test.).) The AVPs manage “areas” that range from a single state, such as New York, to a region of states, such as the northwest. (Pl.'s Ex. 31A (sealed).) AVPs report to one of two vice presidents of sales (one in the eastern region of the country and one in the west) who in turn report directly to the president of Synthes.

         AVPs are responsible for “leading the overall management of sales strategies, activities, operations, and budgets associated with driving sales for the organization.” (Pl.'s Ex. 9, at 1.) AVPs must accordingly engage, manage and develop regional managers and lead the overall implementation of sales strategies and operations; they are also expected to forge and maintain relationships with key opinion leaders within their assigned geographic area. (Id.)

         While AVPs are responsible for defined areas, they do not work in a vacuum. (Hrg. Tr. 1, at 49:13-15 (Gregoris Test.).) Their duties necessarily entail executing Synthes's nationwide sales plans within their assigned regions. An AVP therefore cannot do his or her job without knowing these national strategies and initiatives. (Hrg. Tr. 2, at 133:15-18 (Carpenter Test.).) To that end, the AVPs work together on a regular basis. Along with the two vice presidents of sales, the AVPs make up the sales leadership team for Synthes. (Id. at 131:24- 132:6.) The team has weekly telephone calls, in addition to ad hoc calls and in-person meetings, during which the group discusses Synthes's strategic initiatives and national sales information. (Id. at 132:23-133:2.) In addition to these meetings, the AVPs also work together to develop Synthes's annual business plan. See (id. at 168:1-4). Lastly, AVPs occasionally attend national pricing committee meetings on behalf of the vice presidents of sales. (Id. at 107:17-108:4 (Gregoris Test.); Pl.'s Ex. 39 (sealed).) At these meetings, the pricing committee makes exceptions to established Synthes pricing matrices. (Hrg. Tr. 1, at 107:17-108:4; 103:18- 25; Pl's Ex. 37a (sealed).)

         Consistent with their leadership positions and overall company responsibilities, AVPs have access to and receive an extensive amount of confidential information, including national sales strategies, nationwide pricing information, national sales numbers with analysis and commentary, forecasts, growth plans, market strengths and weaknesses, information about confidential products still in development and sales consultant rankings. (Pl's Ex. 33A (sealed); Hrg. Tr. 2, at 134:1-135:8 (Carpenter Test.); Verified Compl. ¶ 6.) Strategies for optimizing the sales force in addition to information about other confidential projects and initiatives within the company are also shared with the AVPs. (Hrg. Tr. 2, at 134:21-135:4 (Carpenter Test.).)

         B.

         Synthes hired Daniel Gregoris as a trauma sales consultant in August 1996. (Hrg. Tr. 1, at 41:9 (Gregoris Test.); Decl. of Daniel Gregoris, (“Gregoris Decl.”) ¶ 3, ECF No. 12-1.) Over the next twenty years, Gregoris worked his way up through the company. In 2006 Synthes promoted Gregoris to regional manager. (Hrg. Tr. 1, at 42:13-16 (Gregoris Test.).) In 2008 Synthes promoted Gregoris again, this time to AVP of the northeast region, an area that included New York and New England.[1] (Verified Compl. ¶ 32; Hrg. Tr. 1, at 44:1-4 (Gregoris Test.).) Gregoris worked as AVP for the northeast until May of 2016, when Synthes made him its director of commercial integration. (Gregoris Decl. ¶ 55.) In that role, Gregoris was no longer responsible only for sales; instead, he helped to integrate a recently acquired company, Bio Medical Enterprises (“BME”), into Synthes. (Id. ¶ 13.)

         Gregoris neither sought nor wanted the commercial integration position. Rather, his new job title was the product of an ultimatum given to him by his manager, Vice President of Sales Ken Carpenter, following a Synthes corporate reorganization. (Hrg. Tr. 1, at 217:9-218:18 (Gregoris Test.).) After the reorganization, there were only sixteen positions available for the then-nineteen AVPs. (Hrg. Tr. 2, at 12:3-4 (Gonzalez Test.).) Synthes did not select Gregoris for one of the available AVP positions. (Id. at 11:15-22.) It offered him the BME position instead, while asking him to continue as AVP of New York on an interim basis until the already-selected permanent hire, Bassel Rifai, could assume the role. (Hrg. Tr. 1, at 224: 22-226:15 (Gregoris Test.); Gregoris Decl. ¶ 57.) The choice for Gregoris was clear: take the BME position or face termination. (Gregoris Decl. ¶¶ 55 & 56.)

         In September 2016 Synthes offered Gregoris the AVP of New York position on a permanent basis because of his success with the BME integration and Synthes's decision to place Rifai into a different position. (Hrg. Tr. 1, at 226:24-227:2 (Gregoris Test.); Verified Compl. ¶ 47.) Gregoris verbally accepted the position but did not sign a new employment agreement.

         At least in part due to the changes in his duties and a purported concern for his future at Synthes, Gregoris began speaking with Globus about taking a position as vice president of sales for its trauma division. Until recently, Globus has largely focused on manufacturing musculoskeletal implants for spine surgery. (Decl. of David Demski, (“Demski Decl.”), ¶ 3, ECF No. 12-2.) The company has developed a comprehensive portfolio of over 140 spine products and an international distribution network through which to sell them. (Pl.'s Ex. 4, at 4.)

         Globus is now, however, “in the very early stages of . . . entering the trauma market” and is developing a “comprehensive bag” of products for use in trauma surgeries. (Demski Decl. ¶¶ 3 & 4.) The company has “aspirations to one day become a significant player in the trauma market with the ability to compete with market leaders, ” including Synthes. (Id. ¶ 5.) Globus currently has two trauma products under FDA review and anticipates submitting seven more within the next year. (Hrg. Tr., at 13:9-18 (Demski Test.), ECF No. 35 (hereinafter “Hrg. Tr. 3”).) Globus anticipates FDA approval on its first two products in the spring of 2017 with the remaining products to follow later in the year. (Id. at 13:13-18.; Demski Decl. ¶ 4.)

         While Globus awaits regulatory approval of its initial trauma products, it intends to develop a national salesforce capable of selling devices as soon as the FDA permits. Globus anticipates hiring twenty-two sales representatives this year to begin selling products in the third quarter of 2017. (Hrg. Tr. 3, at 13:15-22 (Demski Test.); Demski Decl. ¶ 7.) Globus has a sales goal of $2.3 million in 2017 for this new line of products. (Hrg. Tr. 3, at 16:13-15 (Demski Test.).)

         Globus accordingly needed an experienced executive who could recruit a sales force and help launch its new trauma division and Gregoris, based largely on his work for Synthes, fit the bill. In June 2016, Gregoris and Globus began discussing the possibility of Gregoris leaving Synthes for Globus. (Pl.'s Ex. 22.) Gregoris interviewed and met with Globus executives and personnel on at least three occasions: June 28, (Pl.'s Ex. 123 (sealed)); August 9, (Pl.'s Ex. 126 (sealed)); and August 25, (Pl.'s Ex. 128 (sealed)). Globus offered Gregoris the job on August 25. (Pl's Ex. 25. (sealed).) Negotiations between the parties, including Gregoris's personal attorney, continued for several months and by October 5 Gregoris was in the final stages of accepting the Globus offer and was planning to leave Synthes. (Pl.'s Ex. 27 (sealed); Pl.'s Ex. 130 (sealed).) He received an updated offer letter from Globus on October 24, (Pl.'s Ex. 28 (sealed)), which he Dated: October 27. He resigned from Synthes on October 31. (Id.; Verified Compl., ¶ 91). As Vice President of Sales, Trauma for Globus, Gregoris will be “responsible for the development and execution of all domestic sales strategies and activities within [Globus's] trauma business unit.” (Def.'s Ex. 25.) Gregoris will need to recruit a salesforce, make necessary promotions, and “orchestrate a market launch of a [trauma] product platform” for Globus. Id.

         C.

         Over the course of his Synthes career, Gregoris signed several employment agreements. See, e.g., (Pl.'s Exs. 5, 6 & 178). The most recent of which, the Employee Secrecy, Intellectual Property, Non-Competition and Non-Solicitation Agreement (“the Agreement”), Gregoris signed on March 27, 2014. See (Pl.'s Ex. 5). The Agreement includes the following provisions and definitions primarily at issue here; notably the Agreement's restrictive covenant:

[D]uring your employment with any COMPANY and for a period of eighteen (18) months after the termination of your employment (whether voluntary or involuntary), you will not, directly or indirectly, perform, or assist others to perform, work for any COMPETITOR in any position in any location in which you could disadvantage [Synthes] or advantage the COMPETITOR by: (a) your disclosure or use of CONFIDENTIAL INFORMATION to which you had access; (b) your use of the specialized training provided to you by your EMPLOYER or any COMPANY for which you have worked; and/or (c) your use of CUSTOMER relationships and goodwill.

(Id. at 3, ¶ 6 (emphasis added).) “Confidential Information” is defined as information about Synthes's business “not generally known to the trade or industry in which [Synthes] is engaged, which is disclosed to you or known by you as a result of your employment by [Synthes].” (Id. at 1.) Confidential information includes, among many other things, strategies, operations, business planning and development, pricing, training, sales volumes, performance reviews, compensation and rankings not publically known and disclosed in connection with employment by Synthes. (Id.)

         The Agreement defines “competitor” as:

[A]ny person or entity including, but not limited to, you or anyone acting on your behalf, (a) that is engaged in research, development, production, marketing, selling of, or consulting on a product, process, technology, machine, invention or service in existence or under development that resembles or competes with, or can be substituted for, a product, process, technology, machine, invention, or service of any COMPANY that is in existence or under development; (b) that could benefit from (i) CONFIDENTIAL INFORMATION; (ii) your use of the specialized training provided to you by your EMPLOYER or any COMPANY; and/or (c) that could benefit from your use of the COMPANY's customer relationships and/or goodwill.

(Id. at 2 (emphasis added).) The Agreement also contains specific limitations on solicitation:

[Y]ou agree that during your employment and for eighteen (18) months after the termination of your employment (whether voluntary or involuntary) with the COMPANY, you shall not, directly or indirectly, contact, call upon, solicit business from, sell to, or render services to, or assist others in contacting, calling upon, soliciting business from, selling to, or rendering services to, any CUSTOMER: (a) in connection with the sale, support, service or use of any product or service that resembles or competes with or that may be substituted for one that is being sold, under development or acquired by any COMPANY; (b) if you are working with, for, or as a COMPETITOR of any COMPANY; and/or (c) if your activities could damage or interfere with the CUSTOMER relationships of any COMPANY or divert business from such CUSTOMERS to a COMPETITOR. . . .

(Id. at 3, ¶ 7.) Finally, the Agreement provides:

[Y]ou agree that for a period of twelve (12) months after your last date of employment within the COMPANY, you will not, directly or indirectly, on your own behalf or on behalf of others, solicit, recruit, interview, hire, identify, suggest or comment on any individual employed by any COMPANY to leave his or her employment with the COMPANY. . . .

(Id. at 3, ¶ 8.)

         II.

         Synthes contends that Gregoris cannot serve in his new position at Globus without violating the Agreement and causing immediate and irreparable harm to Synthes. Gregoris does not dispute that Globus and Synthes are competitors, nor does he contest the restrictive covenant's geographical or temporal scope, per se. He instead argues that the Court should only enforce the restrictive covenant in his former Synthes northeast area. He then claims his role at Globus will not, for at least the first eighteen months of his employ there, allow him to advantage Globus or disadvantage Synthes through the use of any confidential information, specialized training, customer relationships or goodwill he acquired or developed while at Synthes because Globus plans to restrict his activities and responsibilities to areas outside of the northeast region. See (Def.'s Resp., at 4-5, ECF No. 12).

         Synthes filed a verified complaint, (ECF No. 1), along with a motion for a temporary restraining order and preliminary injunction on December 1, 2016, noting that Gregoris's start date at Globus was December 5, 2016, (ECF No. 3). The Court held a status conference with counsel for the parties on December 2, 2016, (ECF No. 11). All agreed at that time that Gregoris would not begin work at Globus until Synthes's motion was adjudicated. The Court held an evidentiary hearing over three days, December 15, 16 and 19, 2016. (ECF No. 10).

         Federal Rule of Civil Procedure 65 authorizes courts to issue preliminary injunctions. Injunctive relief is “an extraordinary remedy, ” which the Court may grant only “upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Ctr., 555 U.S. 7, 22 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)). A party seeking a preliminary injunction must establish that: (1) they are likely to succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of the preliminary injunction; (3) “that the balance of equities tips in [their] favor”; and (4) that an injunction is in the public interest. Id. at 20; see also Ferring Pharms., Inc. v. Watson Pharms., Inc., 765 F.3d 205, 210 (3d Cir. 2014). The movant bears the burden of proving each of these elements, Ferring Pharms., 765 F.3d at 210 (citing Opticians Ass'n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990)), and the “failure to establish any element renders a preliminary injunction inappropriate, ” id. (quoting NutraSweet Co. v. Vit-Mar Enters., Inc., 176 F.3d 151, 153 (3d Cir. 1999)). Although the plaintiff need not prove their case with “airtight certainty, ” the moving party nevertheless “bears a heavy burden on a motion for a preliminary injunction.” Punnett v. Carter, 621 F.2d 578, 588 (3d Cir. 1980).

         III.

         The parties agree that New Jersey law governs the interpretation of the Agreement, and the Agreement contains a choice-of-law clause stating that New Jersey law governs its application and interpretation. See (Pl.'s Ex. 5, at 6.) The Court must apply Pennsylvania's choice-of-law rules. See Klaxon v. Stentor Mfg. Co., 313 U.S. 478 (1941). Pennsylvania applies Second Restatement of Conflict of Laws to a choice-of-law provision. See, e.g., Synthes USA Sales, LLC v. Harrison, 83 A.3d 242, 247 (Pa. Super. Ct. 2013). Under the Second Restatement, a choice-of-law clause will be enforced unless either: (1) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice; or (2) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties. Restatement (Second) of Conflict of Laws § 182(2) (1988); see also Harrison, 83 A.3d at 247. Applying New Jersey law does not run counter to Pennsylvania public policy. See, e.g., Smith v. Commonwealth Nat'l Bank, 384557 A.2d 775, 777 (Pa. Super. Ct. 1989) (“Choice of law provisions in contracts will generally be given effect.”). Moreover, there is a reasonable basis for applying New Jersey law: Synthes has significant and ongoing business contacts with that state.

         While New Jersey law governs the applicable contract provisions, the Court must apply a federal standard to determine whether to grant a preliminary injunction. See Sys. Operations, Inc. v. Sci. Games Dev. Co., 555 F.2d 1131, 1141 (3d Cir. 1977) (“Although the right upon which this cause of action is based is state-created, Rule 65(a) of the Federal Rules of Civil Procedure ...


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