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Depuy Synthes Sales, Inc. v. Globus Medical, Inc.

United States District Court, E.D. Pennsylvania

April 26, 2017

DEPUY SYNTHES SALES, INC.
v.
GLOBUS MEDICAL, INC., MICHAEL FOLEY, JEREMY D. LEARY, and MICHAEL VALERI

          MEMORANDUM

          O'NEILL, J.

         Plaintiff DePuy Synthes Sales, Inc. initiated the present action seeking injunctive relief and monetary damages against defendants Globus Medical, Inc., Michael Foley, Jeremy Leary and Michael Valeri in connection with Globus Medical's alleged poaching of DePuy Synthes' employees, customer relationships and goodwill. Following plaintiff's motion for preliminary injunction, defendants moved to dismiss the entire complaint. For the following reasons, I will grant defendants' motion to dismiss in part and deny it in part.

         FACTUAL BACKGROUND

         I. DePuy Synthes' Business Generally

         According to the facts set forth in the complaint, plaintiff DePuy Synthes is a leader in the highly competitive medical device industry. Compl. ¶ 21. DePuy Synthes designs, manufactures, markets and sells medical implants and instrumentation such as plates, screws, rods and other devices used in orthopedic surgeries for internal fixation of broken bones and for spinal and facial surgery. Id. ¶ 21. It then markets and sells its products through a sales force primarily comprised of sales consultants who are assigned to specific territories and, in many instances, work with and under regional team leaders. Id. ¶ 23. DePuy Synthes generally pays its sales consultants on a commission basis and provides incentives and enhanced commissions to promote growth within the consultants' assigned territories. Id. ¶ 24. In addition to selling products, sales consultants are expected to assist surgeons in the operating room when DePuy Synthes products are used and, as a result, sales consultants' relationships with their physician customers are key factors necessary to grow and maintain the business. Id. ¶ 25. DePuy Synthes' customers include group purchasing organizations and integrated delivery networks; health systems; hospitals and surgery centers and their materials management, operating room, sterile processing, purchasing and relating personnel; and physicians and their partners, employees and staff nurses. Id. ¶ 26.

         DePuy Synthes invests significant time, effort and money to develop its confidential information, training programs, customer relationships and related goodwill. Id. ¶ 27. To protect these investments, it requires all sales employees to sign an employee agreement, which contains obligations that protect against the use or disclosure of confidential information, the solicitation and servicing of its customers, the solicitation of its employees to leave their employment, disloyalty during employment and the efficient transition of responsibilities in the event of a termination. Id. ¶ 27.

         II. Globus Medical's History of Competition With DePuy Synthes

         Globus Medical, Inc. is a direct competitor of DePuy Synthes. Id. ¶ 28. Its founding became the subject of a three-year federal action involving allegations that Globus Medical and two of its top executives, who were former DePuy Synthes employees, stole DePuy Synthes' trade secrets and confidential information and breached their employee contracts. Id. ¶ 29. That litigation settled in August 2007. Id. ¶ 30.

         According to the complaint, Globus Medical has continued “poaching” DePuy Synthes employees in violation of their employment agreements. Id. ¶ 30. This conduct became the subject of at least six state and federal lawsuits, which culiminated in a global settlement of all claims on September 23, 2010. Id. ¶ 31. Following DePuy Synthes' merger with and into a subsidiary of the Johnson & Johnson family of companies on June 14, 2012, however, Globus Medical purportedly resumed poaching DePuy Synthes employees. Id. ¶ 32. The February 2017 recruitment and hiring of defendants Michael Foley, Jeremy Leary and Michael Valeri (collectively, “the Sales Consultants”) are among the most recent examples of Globus Medical's alleged conduct. Id. ¶ 33.

         III. The Sales Consultants

         Defendant Michael Foley was a sales consultant in the spine division of DePuy Synthes' business, and was assigned the Central Jersey territory encompassing customers such as John F. Kennedy Medical Center, Robert Wood Johnson University Hospital, University Surgery Center and Saint Peter's University Hospital, as well as the physicians and staff affiliated with those locations. Id. ¶ 34. On November 14, 2014, DePuy Synthes hired Foley as a sales consultant from his previous employment with Spinal Concepts (a contracted DePuy Synthes distribution company), at which time Foley executed his DePuy Synthes employment agreement. Id. ¶ 35.

         Defendant Jeremy Leary was a sales consultant in the spine division of DePuy Synthes' business, and was assigned the Jersey Coast territory encompassing customers such as Bayshore Community Hospital, Jersey Shore University Medical Center, Monmouth Medical Center, Ocean Medical Center, Riverview Medical Center, Southern Ocean Medical Center and Surgicare Surgical Associates of Freehold, as well as the physicians and staff affiliated with those locations. Id. ¶ 36. On November 14, 2014, DePuy Synthes hired Leary as a sales consultant from his previous employment with Spinal Concepts, at which time Leary executed his DePuy Synthes employment agreement. Id. ¶ 37.

         Defendant Michael Valeri served as the team leader for the Central Jersey and Jersey Coast territories working in collaboration with Foley and Leary and having shared responsibility for the customers in those territories. Id. ¶ 38. On November 14, 2014, DePuy Synthes hired Valeri as a sales consultant from his previous employment with Spinal Concepts, at which time Valeri executed his DePuy Synthes employment agreement. Id. ¶ 39.

         The Sales Consultants worked collaboratively regarding business in the team's territories, business planning and strategy, customer engagement and competitive threats and responses. Id. ¶ 40. To fulfill their responsibilities, they had access to confidential information related to the business in their territories and beyond, including periodic and year-end sales data, performance rankings, sales by pathology and product line and customer or GPO-specific pricing and discounts, as well as information related to DePuy Synthes' research and development plans and strategy and sensitive discussions between DePuy Synthes and its customers related to the development and rollout of new products and the refinement of existing products. Id. ¶ 41. The complaint alleges, upon information and belief, that some of this confidential information may have been transmitted to the Sales Consultants' personal email accounts. Id.

         In connection with DePuy Synthes' transition to a direct-sales model and the termination of its distribution relationship with Spinal Concepts, and to protect the customer relationships and goodwill belonging to DePuy Synthes, Spinal Concepts assigned all rights it had in any agreements with Foley, Leary and Valeri, including any rights in non-competition and non-solicitation obligations owed to Spinal Concepts, and confirmed the assignment of all rights and intangibles, including goodwill associated with customers, to DePuy Synthes. Id. ¶ 42.

         The Sales Consultants received specialized training on the technical aspects of DePuy Synthes' products and the medical procedures in which these products are used, techniques for educating operating room personnel and surgeons during medical procedures and the use of new and existing implants and instrumentation. Id. ¶ 43. They also received access to confidential information regarding DePuy Synthes' contract and sales administration, personnel and other departments; DePuy Synthes' customers; and business activities such as pricing, marketing and sales strategies, competitive responses and product development research, pipelines and release schedules. Id. ¶¶ 43-44. DePuy Synthes further provided the Sales Consultants with direct access to DePuy Synthes' customer relationships and made them responsible for maintaining, nurturing and developing those relationships to grow DePuy Synthes' business. Id. ¶ 46.

         IV. The Employment Agreements

         To protect these investments, as well as its customer relationships and goodwill, DePuy Synthes required the Sales Consultants to enter into employment agreements as a condition of their employment. Id. ¶ 47. The agreements contained prohibitions on: (a) directly or indirectly doing anything during their employment with DePuy Synthes to impair its business or customer relationships, including informing customers of future employment or services, competing products or services or recruiting or soliciting fellow DePuy Synthes employees to join a competitor; (b) directly or indirectly competing with DePuy Synthes in assigned sales territories both during their employment and or an eighteen-month period following termination of their employment, including from assisting others in such competition; (c) directly or indirectly contacting, soliciting or servicing DePuy Synthes customers for which they had any responsibility or with which they had any contact both during their employment for an eighteen-month period following their termination; and (d) disclosing or using DePuy Synthes' confidential and business information about DePuy Synthes' customers that is not publicly known and was obtained by them during their employment. Id. ¶ 48. In addition, the agreements included a commitment to provide DePuy Synthes with two-weeks' notice of a resignation to facilitate a smooth transition of case coverage and responsibilities, to minimize disruption of patient care and to ensure compliance with fiduciary and contractual obligations. Id.

         V. The Sales Consultants' Alleged Conduct in Violation of Their Agreements

         The complaint alleges, upon information and belief, that the Sales Consultants initially planned to join Globus Medical beginning in February 2016, but remained employed by DePuy Synthes throughout 2016, delaying their resignations until February 2, 2017, when they collectively notified DePuy Synthes of their plans to leave. Id. ¶ 66. Although the Sales Consultants originally communicated their intent to comply with their two-week notice and transition obligations, they informed DePuy Synthes that at least one of them had been “advised heavily against” remaining with DePuy Synthes for the transition. Id. ¶ 67. As such, they opted to terminate their relationship with DePuy Synthes and begin working for Globus immediately. Id. Their last day with DePuy Synthes was February 3, 2017.

         According to the complaint, the Sales Consultants met as a team in April 2016 to assess the business and competitive threats in their assigned territories and to plan jointly the business strategies and goals for the remainder moving forward. Id. ¶ 68. During this time, they maintained access to DePuy Synthes' resources, confidential information, customer relationships and associated goodwill. Id. ¶ 69.

         The Sales Consultants began their employment with Globus Medical on February 6, 2017. Id. ¶ 71. On that day, several surgical cases that had previously been scheduled for the use of DePuy Synthes spine products were converted to Globus. Id. This conversion required advanced planning, including the delivery and preparation of surgical trays and sets containing Globus products for use in the surgery and staffing by Globus employees to cover the surgery. Id.

         Having abruptly terminated their positions, the Sales Consultants left DePuy Synthes without effective cover and transition for the accounts in their territories, without effective transition for patient care with respect to scheduled surgical cases and without giving DePuy Synthes the time to ensure that the Sales Consultants would comply with the obligations in their employee agreements. Id. ¶ 72. In response to DePuy Synthes' initial demands, the Sales Consultants promised to not interact with customers in the field for a two-week period to allow DePuy Synthes to investigate the Sales Consultants' anticipated roles and responsibilities for Globus. Id. ¶ 73. According to the complaint, however, defendants provided no such clarity as to their new positions and simply recommenced employment in their new sales roles with Globus Medical on February 20, 2017. Id.

         Globus Medical knew from its history of litigation with DePuy Synthes that DePuy Synthes maintains and enforces restrictive covenants in its employment agreements with its sales employees. Id. ¶ 74. The responsible decision-makers at Globus Medical, and the Sales Consultants themselves, were well-aware of the contractual obligations that the Sales Consultants each owed to DePuy Synthes. Id. ¶ 75. DePuy Synthes alleges, however, that Globus recognized an opportunity to poach a significant portion of DePuy Synthes' New Jersey spine sales force in order to convert DePuy Synthes' business, customer relationships and goodwill to Globus Medical and to exploit the Sales Consultants' training and access to DePuy Synthes' confidential information. Id. ¶ 76. Indeed, the Sales Consultants are employed by Globus Medical within the geographic territory covered by their former DePuy Synthes team in violation of their agreements. Id. ¶ 78. Plaintiff believes that defendants intend to directly and indirectly solicit and service customers from the Sales Consultants' assigned DePuy Synthes territories, and intend to “flout and interfere with the Sales Consultants' non-competition and non-solicitation obligations going forward.” Id. ¶¶ 79-80. Moreover, DePuy Synthes alleges that the Sales Consultants, with the support of Globus Medical, have already undertaken unlawful competitive activities and began soliciting DePuy Synthes customers on behalf of Globus Medical prior to their resignation. Id. ¶¶ 80-81.

         VI. Procedural History

         Plaintiff DePuy Synthes commenced the current litigation on March 9, 2017. Its complaint sets forth six causes of action as follows: (1) breach of fiduciary duty and/or duty of loyalty against the Sales Consultants; (2) breach of contract against the Sales Consultants; (3) aiding and abetting breach of fiduciary duty against all defendants; (4) tortious interference with contractual relationships and prospective business relations against all defendants; (5) unfair competition against all defendants; and (6) conspiracy against all defendants. Plaintiff also filed a motion for preliminary injunction on March 10, 2017.

         On April 5, 2017, defendants filed the current motion to dismiss for failure to state a claim. Defs.' Mot to Dismiss, Dkt. No. 19. Plaintiff responded on April 10, 2017, Pl.'s Resp. Opp'n Mot. to Dismiss, Dkt. No. 21, and Defendants filed a reply brief on April 17, 2017, Defs.' Reply Br., Dkt. No. 23, making the motion ripe for consideration.

         STANDARD OF REVIEW

         Under Federal Rule of Civil Procedure 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6); see also Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). The United States Supreme Court has recognized that “a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotations omitted). “[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” and “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. A complaint does not show an entitlement to relief when the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct. Id.

         The Court of Appeals has detailed a three-step process to determine whether a complaint meets the pleadings standard. Bistrian v. Levi, 696 F.3d 352 (3d Cir. 2014). First, the court outlines the elements a plaintiff must plead to state a claim for relief. Id. at 365. Next, the court must “peel away those allegations that are no more than conclusions and thus not entitled to the assumption of truth.” Id. Finally, the court “look[s] for well-pled factual allegations, assume[s] their veracity, and then ‘determine[s] whether they plausibly give rise to an entitlement to relief.'” Id., quoting Iqbal, 556 U.S. at 679. The last step is “‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” Id., quoting Iqbal, 556 U.S. at 679.

         DISCUSSION

         I. Breach of Fiduciary Duty Claim

         Defendants contend that plaintiff's breach of fiduciary duty claim fails for two independent reasons. First, they assert that the claim is barred under the “gist of the action doctrine” as it is derivative of and identical to plaintiff's breach of contract claim. Second, they argue that the complaint is devoid of factual allegations suggesting that the Sales Consultants breached any duty to DePuy Synthes during the term of their employment. As I find that the gist of the action doctrine bars the claim, I focus solely on this portion of defendants' argument.

         As a general rule, Pennsylvania[1] courts are cautious about permitting tort recovery on contractual breaches. Glazer v. Chandler, 200 A.2d 416, 418 (Pa. 1964); eToll, Inc. v. Elias/Savion Adver., Inc., 811 A.2d 10 (Pa. Super. Ct. 2002). In Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa. 2014), the Pennsylvania Supreme Court reaffirmed the long-standing principle that the “gist of the action” doctrine precludes a tort claim “based on [a] party's actions undertaken in the course of carrying out a contractual agreement . . . when the gist or gravamen of the cause of action . . . . although sounding in tort, is, in actuality, a claim against the party for breach of its contractual obligations.” Id. at 53. The simple existence of a contract between two parties “does not, ipso facto, classify a claim by a contracting party for injury or loss suffered as the result of actions of the other party in performing the contract as one for breach of contract.” Id. at 69. The doctrine, however, forecloses a party's pursuit of a tort action for the mere breach of contractual duties, “‘without any separate or independent event giving rise to the tort.'” Smith v. Lincoln Benefit Life Co., No. 08-1324, 2009 WL 789900, at *20 (W.D. Pa. Mar. 23, 2009), aff'd, 2010 WL 3730196 (3d Cir. Sep. 24, 2010), quoting Air Prods. and Chems., Inc. v. Eaton Metal Prods. Co., 256 F.Supp.2d 329, 340 (E.D. Pa. 2003).

         “[T]o evaluate whether the gist of the action doctrine applies, a court must identify the duty breached, because ‘the nature of the duty alleged to have been breached . . . [is] the critical determinative factor in determining whether the claim is truly one in tort, or for breach of contract.'” Downs v. Andrews, 639 F. App'x 816, 819 (3d Cir. 2016), quoting Bruno, 106 A.3d at 68. To make this determination, the court must look at the substance of the allegations comprising a claim, without regard to the labeling of a claim by the plaintiff, and ascertain the source of the duties allegedly breached, Downs, 639 F. App'x at 819; Synthes, Inc. v. Emerge Med., Inc., 25 F.Supp.3d 617, 724 (E.D. Pa. 2014). As explained by the Pennsylvania Supreme Court:

If the facts of a particular claim establish that the duty breached is one created by the parties by the terms of their contract-i.e, a specific promise to do something that party would not ordinarily have been obligated to do but for the existence of the contract- then the claim is to be viewed as one for breach of contract. . . . If, however, the facts establish that the claim involves the violation of a broader social duty owed to all individuals, which ...

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