United States District Court, E.D. Pennsylvania
DEPUY SYNTHES SALES, INC.
GLOBUS MEDICAL, INC., MICHAEL FOLEY, JEREMY D. LEARY, and MICHAEL VALERI
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
DePuy Synthes' Business Generally
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.
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.
Globus Medical's History of Competition With DePuy
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.
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.
The Sales Consultants
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.
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.
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.
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.
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.
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.
The Employment Agreements
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.
The Sales Consultants' Alleged Conduct in Violation of
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
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.
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
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.
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.
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.
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.
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.
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.
Breach of Fiduciary Duty Claim
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.
general rule, Pennsylvania 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).
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 ...