In Re Maxxim Medical Group Inc.
| Decision Date | 31 March 2010 |
| Docket Number | Bankruptcy No. 03-10438 (PJW).,Adversary No. 8-03-mp-00026-MGW. |
| Citation | 434 B.R. 660 |
| Parties | In re MAXXIM MEDICAL GROUP, INC., et al., Debtors.Maxxim Medical, Inc., Medline Industries, Inc., Plaintiffs,v.Professional Hospital Supply, Inc. and Karen McCauley, Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
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Peter James Duhig, Klett Rooney Lieber & Schorling, Wilmington, DE, Jordi Guso, Paul S. Singerman, Berger Singerman P.A., Miami, FL, Henry H. Janssen, Daniel P. Ring, James A. Willhite, Jr., Janssen Law Offices, Philadelphia, PA, Edward J. Kosmowski, Matthew B. Lunn, Young Conaway Stargatt & Taylor, Wilmington, DE, for Plaintiffs.
Christopher Martin Winter, Michael R. Lastowski, Duane Morris LLP, Wilimington, DE, Dennis J. LeVine, Tampa, FL, for Defendants.
In this adversary proceeding, the Plaintiff, Maxxim Medical, Inc., 1 alleges that Defendant, Karen McCauley, a sales representative of Maxxim, violated a covenant not to compete contained in her sales representative agreement with Maxxim when she went to work for a competitor, Defendant Professional Hospital Supply, Inc. (“PHS”). Maxxim further alleges that not only did both McCauley and PHS lure away Maxxim's customers when McCauley went to work for PHS, but in the process also misappropriated trade secrets primarily in the form of the design and contents of custom procedure trays (“CPTs”) that were McCauley's primary product within her sales area.
In summary, after considering carefully the evidence produced at trial, 2 the Court finds that while McCauley knowingly violated her covenant not to compete in going to work for PHS, at the end of the day, Maxxim suffered no damages as a result of McCauley's actions. That is, the loss of the Maine business by Maxxim was due to the poor quality of Maxxim's services and goods, the loss of a key group purchasing contract, and the filing of its Chapter 11. Neither PHS nor McCauley were in any way responsible for these factors. It was Maxxim's own failures rather than any action by PHS or McCauley that resulted in the loss of the CPT business in Maine by Maxxim. Accordingly, for the reasons set forth below, judgment will be entered in favor of the Defendants.
When Maxxim commenced this adversary proceeding on October 17, 2003, it was a debtor in possession in a Chapter 11 case pending in the United States Bankruptcy Court for the District of Delaware. Maxxim was a medical services and supply company. Its business included the assembly and sale of CPTs used for surgeries and other medical procedures.
Maxxim employed Karen McCauley as a sales representative from July 1, 2002 until June 27, 2003. Her geographical area was the entire state of Maine, and two pre-existing Maxxim accounts in New Hampshire.3 The product lines assigned to McCauley included all of Maxxim's vascular, surgical, and medical products, including CPTs.4
At the time Maxxim commenced this adversary proceeding, PHS was a California corporation with its principal place of business in Temecula, California. Like Maxxim, PHS was also engaged in the CPT business but had only recently expanded into the New England region. When McCauley left her employment with Maxxim on June 27, 2003, she became an employee of PHS working in the same product line and geographical area in which she had worked for Maxxim.
Subsequent to the commencement of this adversary proceeding, on October 28, 2003, Medline Industries, Inc. (“Medline”) purchased all of the assets of Maxxim in a sale authorized pursuant to 11 U.S.C. § 363 by the bankruptcy court in which Maxxim's Chapter 11 case was pending. Subsequently, Medline intervened as a party plaintiff in this adversary proceeding. Based on an agreement between Maxxim and Medline, Medline would be entitled to damages or settlement proceeds relating to the Defendants' conduct on or after November 10, 2003, and Maxxim would be entitled to damages or settlement proceeds relating to the Defendants' conduct prior to November 10, 2003.5
Prior to working for Maxxim, McCauley had twelve years' experience in the health care industry.6 McCauley's level of experience appealed to Maxxim.7 In this respect, she was considered by Maxxim as a “turn-key employee.” 8 That is, one who could be handed an existing client base knowing that the clients would be serviced because of her general skills and knowledge.9 As a result, McCauley was able to “step right in.” 10 Importantly, at the time she started her employment at Maxxim, she already knew the decision makers at some of the major medical facilities and important customers in her territory: Maine Medical Center (“Maine Medical”), Maine General Medical Center (“Maine General”), Penobscot Bay Medical Center (“Penobscot Bay”), and St. Joseph's Hospital (“St. Joseph's”).11
Tom Pilkington was McCauley's direct supervisor at Maxxim. He was involved with hiring McCauley. During the discussions leading up to McCauley's employment, Pilkington sent McCauley a standard form of sales representative agreement (“SRA”). McCauley received this in an email of June 24, 2002. 12 In the email, Pilkington wrote: 13
The SRA contains a covenant not to compete.14 It prohibits McCauley, while she was a Maxxim sales representative and for one year thereafter, from rendering services to any competitor within her assigned territory, from entering into any service agreement, from being employed by, or from acting as agent or independent contractor for a competing business.15 This provision concerned McCauley because Maxxim's business in her geographical area depended in substantial part on the renewal of a contract that Maxxim had with Novation, a major hospital group purchasing organization (“GPO”) in the Northeast. McCauley printed the SRA, read it, and was concerned about the covenant not to compete. As a result, McCauley attempted to change the duration of the covenant not to compete from one year to thirty days. Maxxim refused.16 Pilkington told McCauley that even though she had commenced working for Maxxim, that she would not be paid unless she signed the contract with the covenant not to compete.17
Around this time, in the third week of July, 2002, McCauley called Bill Booth, a friend who had previously been a Maxxim employee. Booth told McCauley at that time that Maxxim was experiencing a lot of problems with the Novation GPO relationship in the nature of poor service levels, shipment backorders, and product runouts.18 He then suggested that McCauley insert language into the SRA that would make the covenant not to compete null and void if Novation did not renew the Maxxim GPO contract.19 As a result, McCauley inserted the following language into her copy of the SRA: “This contract is not enforceable if Maxxim does not retain the Novation contract, which would limit my ability to maintain business in this territory.” 20
McCauley understood at the time that the only person at Maxxim who could approve such a change was Don Chace, who she had earlier interviewed with for the position.21 However, McCauley never spoke with Chace about the proposed change to the covenant not to compete.22 She also never received any written approval from anyone at Maxxim for the change.23 In fact, no one at Maxxim ever told her that her “null and void language” had been approved.24
On July 22, 2002, Maxxim recruiting manager, Shira Blumenstein, received a fax from McCauley of the signed SRA without the “null and void” language. 25 In fact, McCauley admitted at trial that the version of the SRA that she faxed to Blumenstein did not contain the “null and void” language. 26
There were two versions of the SRA received into evidence at trial. Maxxim's exhibit one (“Plaintiff's Exhibit 1”) was a fully executed original containing the original signature of Tom Denmark, director of human resources at Maxxim, the original signature of a witness to Denmark's signature, Julie Bartell, and the original signature of McCauley.27 This exhibit one does not contain the “null and void language.” Maxxim's exhibit two (“Plaintiff's Exhibit 2”) is the version of the SRA that McCauley maintains was a “duplicate original” of the only one she signed.28 It does contain the “null and void” language.29 However, this version does not contain a signature of a Maxxim representative.
At trial, Bartell, the witness to Denmark's signature, credibly testified that Plaintiff's Exhibit 1 was the only version of the SRA executed by Denmark on behalf of Maxxim.30 Bartell denied the existence of any handwritten “null and void” inserts.31 She further testified that the routine practice at the time was to have inserts, if any, retyped into a final document rather than inserting them in handwritten form as is contained in Plaintiff's Exhibit 2.32 Bartell found this document in Maxxim's HR files around May 19, 2003. Plaintiff's Exhibit 1 was shown to McCauley at a May 20, 2003, meeting with her direct supervisor, Pilkington, and his boss, Timothy Julian. 33 McCauley admits that all of what appears to be her handwriting, initialing, and dating was in fact hers although she denies ever receiving a version with Bartell's and Denmark's signatures.34
At trial, Maxxim presented the testimony of a forensic chemist, Albert H. Lyter III, who-based on his knowledge, training and experience-was found by the Court to be well qualified to provide expert testimony in the area of...
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