Hanger Prosthetics & Orthotics v. Capstone Ortho.

• Decision Date: 14 April 2008
• Docket Number: No. 2:06-cv-2879-GEB-KJM.,2:06-cv-2879-GEB-KJM.
• Citation: 556 F.Supp.2d 1122
• Court: U.S. District Court — Eastern District of California
• Parties: HANGER PROSTHETICS & ORTHOTICS, INC., Plaintiff, v. CAPSTONE ORTHOPEDIC, INC., a California Corporation; Glen Ellis, an individual; Santiago Rosales, an individual; David Kimzey, an individual; Angela Fulton; an individual, Defendants.

556 F.Supp.2d 1122

HANGER PROSTHETICS & ORTHOTICS, INC., Plaintiff, v. CAPSTONE ORTHOPEDIC, INC., a California Corporation; Glen Ellis, an individual; Santiago Rosales, an individual; David Kimzey, an individual; Angela Fulton; an individual, Defendants.

No. 2:06-cv-2879-GEB-KJM.

United States District Court, E.D. California.

April 14, 2008.

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David B. Moyer, Nancy Josephine Geenen, Aaron M. Schwarcz, Foley and Lardner, Palo Alto, CA, for Plaintiff.

Alex James Kachmar, Jr., Weintraub Genshlea Chediak, Sacramento, CA, for Defendants.

ORDER^*

GARLAND E. BURRELL, JR., District Judge.

On February 7, 2007, Defendants Santiago Rosales ("Rosales"), Glen Ellis ("Ellis"), David Kimzey ("Kimzey"), Angela Fulton ("Fulton") and Capstone Orthopedic, Inc. ("Capstone"), ("Defendants") filed motions for summary judgment on all of Plaintiffs claims against them. (Dkt. Nos. 63, 64, 65, & 66.) Plaintiff opposes the motions.

BACKGROUND

Plaintiff Hanger Prosthetics & Orthopedics, Inc. ("Hanger") operates prosthetic and orthotics patient care centers in the cities of Tracy and Visalia, California. (Compl.¶ 5.) Hanger's patient care centers maintain hard-copy and electronic patient files that include patient medical, referral source, and contact information. (Alltucker Decl. ¶¶ 9, 11, 12.) This information is not available to the public and Hanger treats it as confidential, having employees sign Employment Confidentiality/ Training Attestations directing that the information should only be used for business purposes and giving employees computer passwords. (Id. ¶¶ 9, 10, 12, 13; Schwarcz Decl. Exs. H, N (Confidentiality Attestations).)

Ellis held the position of Regional Vice President for Hanger's Northern California region from 2000 until his resignation on July 14, 2006. (Schwarcz Decl, Ex. D ("Ellis Depo.") 20:8-21, 109:7-12.) Ellis is the chief executive officer of Capstone, which was formed on July 21, 2006, and is a business competitor of Hanger in the Northern California marketplace. (Ellis Dep. 112:11-12, 113:19-21, 167:18-168:1.) Ellis's employment contract with Hanger contains a non-solicitation clause prescribing that for two years after Ellis ceased being employed at Hanger he was not to solicit Hanger patients or employees. (Schwarcz Decl., Ex. R § 5(b).)

Rosales was a Practice Manager for Hanger's Tracy patient care center, where he was responsible for the center's daily operations. (Schwarcz Decl, Ex. C ("Rosales Dep.") at 19:25.) Kimzey was a Branch Manager for Hanger's Visalia patient care center. (Schwarcz Decl., Ex. B ("Kimzey Dep.") at 19:22.) Fulton is Kimzey's daughter and held the position of Office Administrator/Soft Goods Fitter at Hanger's Visalia center. (Schwarcz Decl., Ex. A ("Fulton Depo.") at 7:23-24, 21:5-8, 22:3-11.)

On December 21, 2006, Plaintiff filed a Complaint against Defendants alleging that "Ellis began to form a scheme to steal Hanger's Confidential Information and take over Hanger's Northern California business in or around May 2006 while he was" employed at Hanger. (Compl.¶ 40.) Plaintiff further alleges that Ellis solicited other Defendant Hanger employees to work at Capstone. (Id. ¶ 43, 42, 44.) Plaintiffs claims against Defendants include federal computer fraud and abuse state computer abuse, trade secret misappropriation, conversion, interference with prospective economic advantage, unfair competition, civil conspiracy, breach of contract, and breach of fiduciary duty. (Id. at 1.)

STANDARD OF REVIEW

A moving party without the ultimate burden of persuasion at trial ... has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.... If ... a moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense.... [I]f the nonmoving party produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion.

Nissan Fire & Marine Ins. v. Fritz Co., Inc., 210 F.3d 1099, 1102-03 (9th Cir.2000) (citations omitted). A genuine issue of material fact exists when the evidence is such that "a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citations omitted). The non-moving party "is entitled to have the evidence evaluated and reasonable inferences drawn in his favor." Devereaux v. Abbey, 263 F.3d 1070, 1086 (9th Cir.2001).

DISCUSSION

Defendants' evidentiary showing in their motions is sufficient to require Plaintiff to controvert it with facts showing the existence of a genuine issue of material fact.¹ See Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.2001) ("the Celotex `showing' can be made by `pointing out through argument-the absence of evidence to support plaintiffs claim'" (quoting Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir.2000))). Accordingly, Plaintiff bears the burden of producing evidence on which the jury could reasonably find in its favor.

I. Plaintiffs Proffered Evidence of Wrongdoing

A Kimzey and Fulton Acquiring Hanger Information and Using it For Capstone's Benefit

In July 2006, Ellis went to Kimzey's house where he asked him to be a shareholder in the new company. (Schwarcz Decl, Ex. G (Fulton diary entry).) On August 18, 2006, while still employed at Hanger, Kimzey signed an employment agreement with Ellis to begin work at Capstone in Visalia on an unspecified date. (Schwarcz Decl., Ex. J.) Kimzey was communicating with Ellis regarding Capstone later that month. (Id., Ex. K (fax suggesting office improvements).) Kimzey testified that after he signed the employment agreement he viewed himself as Capstone's designated agent for the development and growth of the company. (Kimzey Decl. at 102:17-103:6.) Kimzey and Fulton's employment at Hanger was terminated on October 6, 2006. (Kimzey Depo. at 108:1-14; Fulton Dep. at 115:15-116:5.) Kimzey and Fulton are currently employed by Capstone. (Fulton Dep. at 32:4-5; Kimzey Dep. at 13:25.)

An Office Administrator at Hanger's Visalia care center, Shawna Rhyne ("Rhyne") declared that in about late September or early October 2006,

Fulton told me that her brace clinic at Dr. Barnaby's office had been cancelled because Hanger had found out the real reason for the clinic was to solicit business for the new company. Fulton stated that she suspected Yolanda Mosqueda was a spy for Hanger, and that I should not tell her anything.

(Rhyne Decl. 114.) Rhyne also declared that on October 5, 2006, she "saw that Fulton was printing documents from my desktop computer, referred to as the `client' computer, which I had left unattended while talking with Kimzey. Fulton told me she was printing off a `patient recall list' dating back to 2004." (Id. ¶ 6.) Rhyne declared that on that day "Kimzey spoke to me about his new business [and] told me ... I would receive a raise of a `buck.' Kimzey informed me that Hanger had to be out of their current business premises by November 1, 2006, and that he was getting the office space." Then, "while Fulton and Kimzey continued to print the patient list[ ] I asked Fulton if she needed anything from me before I left, and she responded, `Not unless you want to be part of a conspiracy meeting.'" (Id. ¶¶ 5,7.) Later that evening, Fulton called Rhyne and asked for her computer password and in the background she heard Kimzey telling Fulton, "I'm her boss and she has to give it to you." (Id. ¶ 8.) Rhyne then gave Fulton her password. (Id.) Ms. Rhyne declared that she never saw the documents again in the office. (Id. ¶ 9.)

Another office administrator for Hanger Visalia declared that in September 2006, "Kimzey asked me for the names of some of Hanger's biggest payors (insurance companies) for the Visalia patient care center. Kimzey stated that a contracting person was working on contracts for the new company, and that the list of payor names would be helpful. I provided Kimzey with payor names as he had requested." (Mosqueda Decl. ¶ 7.) She further declared that in September 2006 she saw Fulton, with the assistance of Kimzey, connecting a thumb drive (that was not a type used by Hanger) to a desktop computer referred to as the "client" computer, and that "Fulton told me she wanted to copy Hanger forms." (Id. ¶¶ 5, 6.)²

The practice manager at Hanger's Visalia center, John Wettstein, declared that Kimzey told him that "he believed he was entitled to take Hanger's patient recall list for use in his new business. The patient recall list is a list used to contact patients to inform them about upcoming Hanger product demonstrations and/or clinical check-ups." (Wettstein Decl. ¶ 7.)³

There is evidence that Fulton and Kimzey were holding back on contacting patients in the month before they left to work for Hanger. (Wettstein Decl. ¶ 6 ("In or about September 2006, Kimzey told me that he was holding back on business and working referral sources in anticipation of the new business."); Jensen Decl. ¶ 6 ("The Visalia care facility also experienced a decline in net sales during September 2006, the month prior to Kimzey and Fulton's termination from employment at Hanger."); Stuckwisch Decl., Ex. A (Stuckwisch Expert Report) ¶ 3 ("[T]here seems no other explanation for the drop in sales [at the Visalia facility during September other than the fact that Ellis, Kimzey and Fulton `began scheming to steal business from Hanger in its Visalia market-place.'] There were not any significant changes in market conditions (other than defendants' alleged actions) or [in prosthetic and orthotic] technology.").)

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