EndoSurg Med., Inc. v. EndoMaster Med., Inc.

• Decision Date: 19 December 2014
• Docket Number: Case No. GJH–14–2827.
• Citation: 71 F.Supp.3d 525
• Court: U.S. District Court — District of Maryland
• Parties: ENDOSURG MEDICAL, INC., et al., Plaintiffs, v. ENDOMASTER MEDICAL, INC., et al., Defendants.

71 F.Supp.3d 525

ENDOSURG MEDICAL, INC., et al., Plaintiffs

v.ENDOMASTER MEDICAL, INC., et al., Defendants.

Case No. GJH–14–2827.

United States District Court, D. Maryland, Southern Division.

Signed Dec. 19, 2014.

Gary C. Adler, Roetzel and Andress LPA, Washington, DC, for Plaintiffs.

Alex Jonathan Brown, Shapiro Sher Guinot & Sandler, Anna Zappulla Skelton, Silverman Thompson Slutkin and White LLC, Baltimore, MD, for Defendants.

MEMORANDUM OPINION

GEORGE J. HAZEL, District Judge.

This dispute arose after one of Plaintiffs' employees resigned, started a competing business, and hired several of Plaintiffs' employees. The former employers, Plaintiffs MedServ International, Inc., EndoSurg Medical, Inc., and EndoCure Technologies, Inc. have brought this action against Defendants EndoMaster Medical, Inc., Tommy Leung, Paul Au, and Cathy Young for breach of contract, tortious interference with employment and business relationships, violations of the Maryland Uniform Trade Secrets Act, violations of the Lanham Act, trademark infringement, fraud, breach of the duty of loyalty, and employee piracy and corporate raiding.

This Memorandum Opinion addresses Plaintiffs' Motion for Preliminary Injunction, ECF No. 3, and Defendants' Motion to Dismiss, ECF No. 10. A hearing was held on November 19, 2014. See Loc. R. 105.6. For the reasons stated herein, Plaintiffs' Motion for Preliminary Injunction is DENIED, and Defendants' Motion to Dismiss is GRANTED, in part, and DENIED in part.

I. BACKGROUND

a. Plaintiffs' Complaint¹

Plaintiff MedServ International, Inc. (“MedServ”) is a Maryland corporation that wholly owns Plaintiffs EndoSurg Medical, Inc. (“EndoSurg”) and EndoCure Technologies, Inc. (“EndoCure”), which are also Maryland corporations. ECF No. 2 at ¶¶ 1–3. Endoscopic surgery requires the insertion of a camera or other imaging instrument inside the human body. Id. at ¶ 8. MedServ markets endoscopic equipment repair services to hospitals, ambulatory surgery centers, and certain alternative care facilities. Id. at ¶ 9. EndoSurg sells, distributes, and repairs endoscope replacement components that are manufactured internally or through outside vendors. Id. at ¶ 2. EndoCure manufactures and sells custom rigid and small diameter flexible endoscopes. Id. at ¶ 3.

MedServ and EndoSurg are located at 10727 Tucker Street, Beltsville, Maryland. Id. at ¶ 2. EndoCure is located at 6900 Virginia Manor Road, Suite 110, Beltsville, Maryland. Id. at ¶ 3. EndoSurg and EndoCure have been in operation for ten years and four years respectively. Id. at ¶ 51. EndoSurg has used the following design since 2012:

Id. at ¶ 52.

MedServ alleges that it has a unique in-house manufacturing and repair capability that was created through its extensive history in the field. Id. at ¶ 10. MedServ's capability distinguishes it in the field of endoscopic and surgical instrument repair. Id. To learn their technique, employees of MedServ and its subsidiaries undergo an extensive technician training process, which takes several years to complete. Id. at ¶ 11. In the process, the employees gain an understanding of the relevant raw materials and component parts. Id. at ¶ 13. Plaintiffs allege that due to the cost, time, and effort it takes to train new technicians, MedServ requires that technicians and managers who undergo the training sign non-compete and confidentiality agreements. Id. at ¶ 14. Technicians or managers who have prior experience and do not undergo the training only sign the confidentiality agreement. Id.

In addition, MedServ maintains a database of customer information that includes end-user customer lists, field sales representative customer lists, end-user broker customer lists, historical sales data for endoscope repair, historical sales data for endoscope parts, data relative to unique customers, and data concerning specific vendors and manufactures. Id. at ¶ 17. To protect this information, MedServ requires that employees sign a confidentiality agreement and that employees confirm, in writing, that the information will be returned upon termination of employment. Id. at ¶ 19.

Defendant Leung was the chief technology officer at MedServ. Id. at ¶ 22. In that position, he was privy to MedServ's unique in-house manufacturing and repair capability, its training program, and its client information. Id. at ¶ 25. According to Plaintiffs, as an employee of MedServ, Defendant Leung was subject to MedServ's terms of employment and terms governing termination, which prohibit the use of client information and require that any information be returned upon termination. Id. at ¶ 27.

On May 28, 2013, Defendant Leung formed the company EndoMaster Medical, Inc. (“EndoMaster”), and four months later, on September 17, 2013, resigned from MedServ.Id. at ¶ 23–24. EndoMaster provides the same repair services as EndoSurg. Id. at ¶ 60. EndoMaster is located on the same block as MedServ and EndoSurg at 10739 Tucker Street, Beltsville, Maryland. Id. at ¶ 59. The following are two designs that EndoMaster has used:

Id. at ¶¶ 55–56. According to Plaintiffs, the first design uses a gray color similar to the EndoSurg design, and the second design uses the color blue, uses words in all caps, and places the word “Medical” under EndoMaster similar to the EndoSurg design. Id. at ¶¶ 55–56.

After resigning, Defendant Leung hosted an event at his residence to discuss his plans for EndoMaster and invited several technicians of MedServ. Id. at ¶ 30. Defendant Leung recruited Defendant Paul Au, who was the inventory and purchasing manager at MedServ, to join EndoMaster. Id. at 32. Defendant Cathy Young also joined EndoMaster. Id. at ¶ 37. Defendant Young was the national sales manager at MedServ and had extensive knowledge of MedServ's client information, purchase histories, sales data, and marketing techniques. Id. Plaintiffs allege that, before joining EndoMaster and while still working for MedServ, Defendant Young attempted to procure government contracts for EndoMaster using a subscription service that MedServ had purchased. Id. at ¶ 46. Since joining EndoMaster, Defendant Young has contacted several of MedServ's customers on behalf of EndoMaster by, according to Plaintiffs, using MedServ's client information. Id. at ¶ 41. Plaintiffs also believe that EndoMaster has undergone efforts to confuse customers into believing that EndoMaster is affiliated with MedServ, EndoSurg, and EndoCure by highlighting the names of former MedServ employees in EndoMasters' marketing materials. Id. at ¶¶ 61–62. Also, Defendant Young mentions the names of Defendants Leung and Au, who were high-profile employees of MedServ, in her emails. Id. at ¶¶ 43–44. Plaintiffs obtained EndoMaster's pricing information, which Plaintiffs believe demonstrates that EndoMaster used EndoSurg's confidential pricing model in an effort to underbid EndoSurg. Id. at ¶ 45. Further, Plaintiffs allege that EndoMaster contacted one of MedServ's customers, Paces MedEquip, LLC, and told the customer that MedServ was unstable. Id. at ¶ 49. Plaintiffs contend that EndoMaster's wrongful actions have caused MedServ to suffer significant losses from at least four large customer accounts. Id. at ¶ 50.

b. Evidentiary Hearing on Plaintiff's Motion for Preliminary Injunction

On November 19, 2014, the Court held an evidentiary hearing to address the Motion for Preliminary Injunction. Mr. Wendell Haight testified on behalf of Plaintiffs. Defendants Leung and Young testified for Defendants.

Haight is the president of MedServ and its subsidiaries. Hearing Transcript (“H. Tr.”) at 25, ECF No. 26. In that role, he oversees research, development, and sales operations. Id. Haight has been involved in the endoscope industry since 1993 and joined MedServ in 2008. Id. at 26. Defendant Leung is the president of EndoMaster. Id. at 111. He began his career at an official dealership for Olympus equipment in Japan, where he initially learned how to repair endoscopes. Id. at 106. After working there for sixteen years, he came to the United States and worked for MedServ for twenty years. Id. Defendant Young currently works as a sales manager for EndoMaster. Id. at 124. Defendant Young has worked in customer service for a variety of medical equipment servicers since 1992. Id. at 124–25. She worked for MedServ from 2009 to 2014.Id. at 125.

The parties testified regarding MedServ's repair and training processes. In discussing the training process for new MedServ technicians, Haight explained that the process is tiered and the technicians go from minor repairs to intermediate repairs to major repairs. Id. at 26–27. Haight described major repairs as requiring extensive training and a very specific skill set and said that the process is manufacturer and model specific. Id. He explained that MedServ is one of a few organizations in the country that reverse engineers designs and produces replacement components for flexible endoscopes. Id. at 29. Haight also testified that MedServ requires unique raw material formulas and specific cases from outside contractors. Id. He stated that these processes and raw material formulas are not generally known outside of MedServ. Id. at 29–30. To preserve the confidential nature of the processes, according to Haight, MedServ constantly reiterates their confidential nature and requires employees to sign non-compete agreements. Id. at 30.

Haight testified that Defendant Leung performed research and development at MedServ, including reverse engineering and design work. Id. at 37. According to Haight, Defendant Leung was instrumental in training technicians and was the key supervisor of the technicians. Id. at 34. Defendant Leung had access to MedServ's training programs, its reverse engineering designs, and its unique raw material formulas and specific cases. Id. Haight also testified that before Defendant Leung resigned, he put in requests for tools that would enable him to dissect endoscopes. Id. at 50. Haight testified that Defendant Au was MedServ's...